Loan Types – The Southwestern Adventist University Scholarship Blog

What’s the Difference Between Stafford, Direct, Subsidized, Unsubsidized, and PLUS Loans?

There are a variety of loan options available to help students and their families pay for college. However, these financing tools often have different interest rates, loan limits, eligibility criteria and other terms and conditions. And yes, the names of the various loans and programs can get confusing. You may hear terminology like Stafford, Direct, subsidized, unsubsidized, PLUS, and private loans, and wonder what the differences are between all of these options.

So what are all of these loan types and which one is right for you? Let’s start with the basic definitions of the different borrowing options.

Subsidized

Subsidized student loans are for undergraduate students only. The government pays the interest while you are in school. This type of loan is awarded based on demonstrated financial need, and there are both annual and cumulative limits you can borrow. Subsidized loans include Direct Subsidized (a.k.a. Stafford) Loans and Perkins Loans.

Unsubsidized

Unsubsidized student loans can be used by undergraduate and graduate students. You do not have to demonstrate financial need to qualify for an unsubsidized loan, but there are both annual and cumulative limits on how much you may borrow. Unsubsidized loans include Direct Unsubsidized (a.k.a. Unsubsidized Stafford) Loans.

PLUS

PLUS loans are available to parents of undergraduate students, as well as graduate and professional students to help with costs not covered by other financial aid. The borrower’s credit history will be considered when applying for a PLUS loan. There is no annual limit on how much may be borrowed. PLUS loans may be referred to as Parent PLUS Loans or Grad PLUS Loans.

The chart below will help you understand the similarities and differences among the three major types of federal education loans (subsidized, unsubsidized, and PLUS).

Feature	Federal Subsidized	Federal Unsubsidized	Federal PLUS*⁺
Credit-based?	No	No	Yes
Who is the borrower?	Undergraduate Student	Undergraduate or Graduate Student	Parent or Graduate / Professional School Student
Based on demonstrated financial need?	Yes	No	No
Who pays the interest while in school?	Federal Government	Borrower (either while in school or can choose to defer interest until when no longer enrolled but interest will continue to accrue)	Borrower (either while in school or can choose to defer interest until when no longer enrolled but interest will continue to accrue)
Program names	Federal Direct Subsidized Loan (also known as Federal Direct Subsidized Stafford Loan)	Federal Direct Unsubsidized Loan (also known as Federal Direct Unsubsidized Stafford Loan)	Federal Parent PLUS Loan Federal Grad PLUS Loan

Annual loan limits	Direct Subsidized Loans	Direct Unsubsidized Loans	Annual cost of attendance (COA) minus other aid received during the enrollment period.
	Dependent Undergraduates:	Dependent Undergraduates:
	Freshmen: $3,500 Sophomores: $4,500 Juniors, seniors, and any additional undergraduate years of study: $5,500 per year	Freshmen, sophomores, juniors, seniors and any additional undergraduate years of study: $2,000
	Independent Undergraduates:	Independent Undergraduates:
	Freshmen: $3,500 Sophomores: $4,500 Juniors, seniors, and any additional undergraduate years of study: $5,500 per year	Freshmen and sophomores: $6,000 Juniors, seniors and any additional undergraduate years of study: $7,000 per yearGraduate / Professional School Students: $20,500Medical School Students: $40,500

Aggregate (cumulative) loan limits	Stafford Loans	Stafford Loans
	Dependent and Independent Undergraduates: $23,000	Dependent Undergraduates: $8,000 Independent Undergraduates: $24,500 Graduate / Professional School Students: $73,000 Medical School Students: $158,000 Health Profession Students (Allopathic, Osteopathic, Dentistry, Veterinary, Optometry, Podiatric, Naturopathic Medicine, Naturopathy): $40,500 (9 months) $47,167 (12 months) Pharmacy, Graduate in Public Health, Chiropractic, Clinical Psychology, MA / PhD in Health Administration: $33,000 (9 months) $37,167 (12 months)

Grace period	6 months for Direct Subsidized Loan	6 months	None
Can be used to pay	Tuition and fees Room and board Books Supplies Equipment Transportation Miscellaneous / personal expenses**	Tuition and fees Room and board Books Supplies Equipment Transportation Miscellaneous / personal expenses**	Tuition and fees Room and board Books Supplies Equipment Transportation Miscellaneous / personal expenses

Private Loan Repayment Plans

Repayment plans for private student loans will vary by lender. Some lenders offer the option of a) deferred repayment while in school; b) interest-only payments while in school; or c) a low, fixed monthly payment while in school. Often, with the second or third option there may be interest rate reductions (as incentives) that apply. Beyond the in-school period, many lenders also allow you to choose how long you need to take to repay your loan(s). This can range anywhere from 8 years to 15 years, without the need for consolidation. But, keep in mind that private loan refinancing is also an option at a future point should you need to explore that.

Note that while lenders may refer to their repayment plans as standard repayment, extended repayment and graduated repayment, these repayment plans do not necessarily have the same terms and conditions and federal benefits as the repayment plans for federal education loans, despite the use of similar names for the repayment plans. Lenders may allow borrowers who are experiencing financial difficulty to switch repayment plans, or there may also be some limited forbearance options available in the event of a hardship.

As with any consumer transaction, it’s important to learn as much as possible about a loan before deciding to borrow with a specific lender – including the federal government. In short, know your rights and responsibilities and what your loan obligations might be! Always remember that the best loan is the lowest cost loan. See more advice on how to choose the best education loan.

Is there a tax benefit offered for having a federal or private student loan?

Good news! A borrower of student loans is eligible to deduct as much as $2,500 each year for interest paid on a student loan. The loan must be a qualified education loan and used to pay for qualified higher education expenses, like tuition, fees, room and board).Tax credits, also referred to as education tax benefits, can be claimed by students and families for a number of eligible expenses. These include interest paid on federal and private student loans, in addition to tuition, fees, books, supplies, transportation, etc. According to the IRS, you are allowed to deduct the interest that is paid on a qualified student loan regardless of your payment plan.