How does an unsubsidized loan differ from a subsidized loan?

An unsubsidized loan is distinct from a subsidized loan primarily in terms of interest responsibility. With an unsubsidized loan, the borrower is responsible for all interest that accrues from the moment the loan is disbursed, even while they are still in school. This means that while a student is enrolled, the interest continues to accrue and will accumulate, potentially increasing the total amount the borrower owes when repayment begins.

In contrast, a subsidized loan has the benefit of having the government cover the interest during specific periods, such as while the borrower is in school or during certain deferment periods. This greatly reduces the financial burden on the borrower, as they do not have to pay interest on subsidized loans until specific conditions are met.

The other options reflect characteristics not applicable to unsubsidized loans. For instance, the idea that it is awarded only based on merit is more aligned with specific scholarships rather than the standard criteria for either subsidized or unsubsidized loans. Additionally, both types of loans require repayment after graduation, but the terms regarding interest are what fundamentally distinguish the two types of loans.