A subsidized loan is a loan given by a primary lender like a bank or credit union where someone else is taking care of the accruing interest. The most common example by far is with student loans. The lending for each student loan is done by semester to make sure the student has enough to pay tuition and other expenses, but the government pays for the interest that is accruing on this loan while a student is in school so they don’t have to worry about those bills or about the interest just adding on to the loan amount and compounding on top of that.
This payment of the interest only happens during authorized deferments like while the student is in school, during summer breaks in between classes, or facing financial hardship. Once repayment starts, the student is once again responsible for all the payment, including interest. For more information on obtaining one of these types of loans you can go to the official website: studentaid.ed.gov
Subsidized Versus Unsubsidized: What’s the difference?
Unsubsidized loans are the loans that most people are familiar with, and that’s where the individual is responsible for all the repayment. That includes even while in school for students. The interest will accrue and the student can pay it off, or it will simply roll over into the total amount that is owed. These are also a common form of student loan, although not nearly as desirable for obvious reasons.
Where Else Do They Appear?
Outside of student loans, it’s going to be extremely rare to see any type of subsidized loans though there is some potential for them in emergency economic situations for areas that are rebuilding after a disaster and need additional investment capital.