The loan types that provide an interest subsidy include:
- Direct Subsidized Loans (Federal student loans in the U.S.):
- The government pays the interest while the borrower is in school at least half-time, during the grace period, and deferment periods.
- These loans are need-based and available only to undergraduate students.
- Interest subsidy means the borrower does not accrue interest during these periods.
- Credit Linked Subsidy Scheme (CLSS) for housing loans (India):
- Provides an interest subsidy on housing loans for Economically Weaker Section (EWS), Low Income Group (LIG), and Middle Income Group (MIG).
- The subsidy reduces the effective housing loan interest rate on loans up to certain limits for a tenure of up to 20 years.
- The subsidy amounts vary by income group, e.g., 6.5% for EWS/LIG, 4% for MIG-I, and 3% for MIG-II.
- Mortgage loans with interest subsidy in some countries such as Luxembourg:
- Eligible mortgage loans for the purchase, construction, or improvement of a primary residence can get interest subsidies based on income and household composition.
In summary, the common loan types that provide interest subsidy are federal direct subsidized student loans and government-supported housing loans under schemes like the Credit Linked Subsidy Scheme. In these loans, the interest subsidy reduces the effective interest cost for eligible borrowers during specified periods or loan amounts.