Which to Borrow: Subsidized vs. Unsubsidized Student Loans
Anyone can borrow unsubsidized federal loans, but those who qualify for subsidized loans save more money in interest.
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Head of Content, Personal & Student Loans When choosing a federal student loan to pay for college, the type of loan you take out — either subsidized or unsubsidized — will affect how much you owe after graduation. If you qualify, you’ll pay less with subsidized loans.
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What is a subsidized student loan?
Subsidized student loans are provided for undergraduate students who need help paying for higher education. You must demonstrate financial need to qualify for a subsidized student loan.
Loan terms tend to be more favorable on subsidized loans, and the Education Department pays the interest while you’re enrolled in college. On the other hand, the maximum amount you can receive in subsidized loans is lower.
» MORE: Types of student loans: Which is best for you?
What is an unsubsidized student loan?
Unsubsidized loans are available to undergraduate and graduate students. You do not need to demonstrate financial need to be eligible, and loan limits are higher compared with subsidized loans. But borrowers are responsible for paying all the interest on unsubsidized loans.
Subsidized vs. unsubsidized student loans
The Education Department offers both subsidized and unsubsidized loans as part of the federal direct loan program. If you meet the financial need requirements to qualify for subsidized loans, you’ll pay less than you would with unsubsidized loans.
That’s because while subsidized loans for undergraduate study carry the same interest rate as unsubsidized loans, interest doesn’t accrue while you’re in college and during other periods of nonpayment. For this reason, it’s best to exhaust any subsidized loans you’re offered before taking out unsubsidized loans.
Here are the main differences between subsidized and unsubsidized student loans:
| Subsidized student loans | Unsubsidized student loans | |
|---|---|---|
| Who can borrow | Undergraduate students enrolled at least half time. | Undergraduate, graduate and professional degree students enrolled at least half time. |
| Maximum eligibility period | First-time borrowers on or after July 1, 2013, can take out loans for about six years for a typical four-year program or three years for a typical two-year program. | There is no time limit on using these loans. |
| Loan qualifications | You must demonstrate financial need, as determined by the information you submit on the Free Application for Federal Student Aid, or FAFSA. | Any student can borrow, regardless of financial need. |
| Loan limits | Annual loan limits vary. For example, a first-year dependent undergraduate student can borrow $3,500. The subsidized loan limit for your entire undergraduate education is $23,000. | Annual loan limits vary. The loan limit for the entire time you’re enrolled is $31,000 for dependent undergraduate students. The limits are $57,500 for independent undergraduate students and $138,500 for graduate students who are considered independent. |
| Fees | 1.057% for loans disbursed on or after Oct. 1, 2020. | 1.057% for loans disbursed on or after Oct. 1, 2020. |
| Interest rates | The fixed interest rate is 6.39% for loans disbursed between July 1, 2025 and June 30, 2026. | The fixed interest rate is 6.39% for undergraduate loans; 7.94% for direct graduate or professional degree loans; and 8.94% for PLUS loans. These rates apply to loans disbursed between July 1, 2025 and June 30, 2026. |
| Interest while in school | Interest is paid by the Education Department while you're enrolled at least half time in college. | Interest begins accruing as soon as the loan is disbursed, including while students are enrolled in school. |
| Interest during grace period | No payments are due in the first six months after you leave school. The Education Department continues to pay interest during this time. | Loan payments are not due in the first six months after you leave school, but interest will continue to build. It will then capitalize, meaning it’s added to the original amount borrowed. That increases the total amount you have to repay, and you’ll pay more in interest over time. |
| Interest during deferment | Interest is paid by the Education Department during deferment, which lets you temporarily pause payments. | Interest continues to collect during deferment and will be added to your principal loan amount. |
How to get subsidized and unsubsidized loans
The process for getting a subsidized and unsubsidized loan begins with the Free Application for Federal Student Aid, or FAFSA.
- Review financial aid options. You’ll receive a Submission Summary detailing how much federal aid you’re entitled to. Be sure to first take all the grants and scholarships you’re offered in the report, since it’s free money. You’ll also want to accept any work-study you’re offered before you take on loans.
- Consider how much to borrow. Each year you’re enrolled, your school will determine the amount you can borrow as well as the loan types you qualify for: subsidized or unsubsidized. Taking on too much student loan debt may make repayment difficult after you graduate. It’s best to borrow no more than you expect to earn in your first year out of college.
» MORE: How to get a student loan
» MORE: Your guide to financial aid
Federal loans vs. private student loans
Borrow federal loans first: Private student loans often carry higher interest rates and require a co-signer if a student borrower has no credit history. Both unsubsidized and subsidized federal loans also offer more borrower repayment plans and forgiveness options than private loans.
Consider private loans only if you still need to fill a payment gap to meet college costs. Compare all private loan options, including their interest rates as well as repayment and forbearance options, before you borrow.
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