What is a subsidized loan?

A subsidized loan is defined as a type of financial aid where the government pays the interest on the loan while the student is enrolled in school at least half-time. This characteristic distinguishes it from other types of loans, such as unsubsidized loans, where the borrower is responsible for all interest that accrues from the time the loan is disbursed.

The benefit of a subsidized loan is significant, especially for students who may have limited income and financial resources while pursuing their education. By having the government cover the interest during school, students can focus on their studies without the added stress of accumulating interest on their loans, which will be calculated once they graduate or drop below half-time enrollment.

This type of loan is primarily intended for undergraduate students with demonstrated financial needs, making it an essential tool for financing higher education and reducing overall debt levels once repayment begins.