Subsidized Student Loan vs Unsubsidized Student Loan, What's the Difference?

Subsidized loans are the ones in which the government pays for the interest part of the debt. While in unsubsidized loans, the borrower does not receive any concession from the government and has to pay the complete interest and principal amount during the repayment process. However, the subsidized loans are mostly reserved only for students who are in need of financial help and find it difficult to repay the Education loan. In India, any student who is eligible for tax benefit under section 80E is entitled to receive the subsidy for Education loans.

Let us consider the important points on the basis of which subsidized and unsubsidized loans can be -compared:

1. Eligibility- Students taking admissions in full-time courses and eligible for tax benefit receive the subsidy in Education loans. While others taking admission to any full-time courses receive unsubsidized loans.

2. Amount- There is no upper limit to receive loan subsidy but some banks provide 0.5% subsidy to the girl child and physically disabled people.

3. Interest- In the case of unsubsidized loans, the interest part is added to the principal amount during repayment while in case of subsidized loans tax benefit is eligible only on the interest part of the amount.

4. Repayment- While borrowers receive the subsidy in the loan amount, the income tax benefit is applicable only for eight years or until the whole repayment is made (whichever is earlier). The unsubsidized loan borrowers need to complete the whole repayment within 10-15 years.

The subsidy on Education loan in India can be claimed when one starts to pay the Simple Interest (SI) either during the course tenure or after completion of the course and can be availed during the entire tenure of SI repayment. Your company’s HR department must be aware of the loan taken for less TDS to be deducted from your salary.