# How do unsubsidized loans work

**URL:** <https://boards.straightdope.com/t/how-do-unsubsidized-loans-work/252193>\
**Category:** Factual Questions\
**Created:** [June 25, 2004, 3:42pm UTC](https://boards.straightdope.com/t/how-do-unsubsidized-loans-work/252193 "2004-06-25T15:42:46Z")\
**Posts on this page:** 5\
**Page:** 1

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**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\
**Post date:** [June 25, 2004, 3:42pm UTC](https://boards.straightdope.com/t/how-do-unsubsidized-loans-work/252193/1 "2004-06-25T15:42:46Z")

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I know the gov. doesn’t pay interest, but are they like subsidized loans in the sense that you don’t start paying them back until 6 months post graduation?

Assuming they are at 4% interest, does that mean each year you pay 4% of your principal in interest, so if you have 10k in unsubsidized loans you have to pay $33 a month in interest on it ($400 a year)?

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**Author:** ![Jake4](https://avatars.discourse-cdn.com/v4/letter/j/bc8723/32.png) [@Jake4](https://boards.straightdope.com/u/Jake4)\
**Post date:** [June 25, 2004, 5:12pm UTC](https://boards.straightdope.com/t/how-do-unsubsidized-loans-work/252193/2 "2004-06-25T17:12:01Z")

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> [@Wesley Clark](#):
>
> I know the gov. doesn’t pay interest, but are they like subsidized loans in the sense that you don’t start paying them back until 6 months post graduation?

Yes. While in school, you’re in ‘deferment’, which lasts for an extra 6 months after graduation/leaving school, which is called the ‘grace period’.

Important: Your student loan company likely has a plan where they give you an extra break on your interest rate if you consolidate your loans while still ‘in-grace’.

I’ll let someone else handle interest.

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**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\
**Post date:** [June 25, 2004, 5:40pm UTC](https://boards.straightdope.com/t/how-do-unsubsidized-loans-work/252193/3 "2004-06-25T17:40:59Z")

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My daughter’s loan lets her choose whether to pay the interest while she’s in school, or let it defer until graduation.

Of course by defering, she’s letting it build up.

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**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\
**Post date:** [June 25, 2004, 6:37pm UTC](https://boards.straightdope.com/t/how-do-unsubsidized-loans-work/252193/4 "2004-06-25T18:37:25Z")

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But is that 4% which is often quoted mean you pay 4% of your outstanding principal in interest each year? If so thats not a ton of money, even with a 10k loan its about $33 a month.

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**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\
**Post date:** [June 25, 2004, 6:57pm UTC](https://boards.straightdope.com/t/how-do-unsubsidized-loans-work/252193/5 "2004-06-25T18:57:06Z")

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This will give you a good deal more information

[http://studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp?tab=funding](http://studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp?tab=funding)

Don’t forget that the interest accrues (the interest you don’t pay becomes part of the loan balance). So if you borrow $1,000 at 4% interest and defer payment on it –

The first year you owe $1,040  
The second year you owe $1,081  
The third year you owe $1,1,125  
The fourth year you owe $1,170