Subsidized Vs. Unsubsidized Student Loans

Student loans are a part of life for many college students, and without the proper school support, can be confusing and stressful part of the enrollment process. Rasmussen College Director of Student Economics Adam Steinbrunner  highlights the differences between subsidized and subsidized loans in this informative video clip.

Learn more about repaying your student loans.

Assumptions:

  • All dollar amounts and timeframes discussed in this video are approximations
  • Both loans assumed to be issued from the federal Direct Loan program
    • Loan amount is $5,00, with a 6.8% interest rate for a 10-year loan term upon entering repayment
  • For the unsubsidized loan, total interest accrued over the four years in school is equal to $1,360
  • Paying $20 per month would equal a total of $240 a year, which is $960 over four years
    • $1,360 - $960 = $400 of accrued interest to be capitalized and repaid upon entering repayment
Transcript

Hi. Today I want to talk to you about subsidized loans versus unsubsidized loans. Now, I'm going to walk you through an example of two students who borrowed $5,000 for their education, and they're going to graduate in four years.

So the first person, we're going to call him Bob, and we're going to put him in blue. He has borrowed subsidized loans for his $5,000. The second person, and we're going to call her Rachel, put her in red, she borrowed $5,000 in unsubsidized loans.

Now, Rachel, over the course of four years, is going to accrue interest on her loan to the total of $6,300 that she'll owe once she goes into repayment. Bob, actually, will not owe that much. He'll only owe the original $5,000 because of his subsidized loans.

Now, the difference between the $1,300 and the $5,000 is the interest that the government pays while you're in school on your loans. One thing that Rachel can do to counteract the total amount of interest that she has to pay back at the end of school is to pay while she's in school. So, even if she only paid $20 a month while she's in school, the total amount that she owes after school would be only $5,400, a lot less than the $6,300 if she didn't make payments.

So, you can see the choices you make when you're choosing between subsidized loans and unsubsidized loans is important, and you want to maximize your subsidized loans.

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This article was transcribed by the Rasmussen College Blog team. Are you ready to take the plunge into a new, successful future? If so, learn more about our degree programs today.

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