The U.S. Department of Education offers several types of student loans to college students, including subsidized and unsubsidized loans.
Subsidized loans are the more affordable option, since the government pays off the accruing interest while you’re in school. However, unsubsidized loans can also be a worthwhile choice, especially if you don’t qualify for subsidized loans or if you hit your borrowing limit and need more funding for school.
Here’s a closer look at subsidized vs. unsubsidized loans to better understand the key similarities and differences between the two.
Direct Subsidized Loans
Direct Subsidized Loans are a type of federal student loan available to undergraduate students with financial need. They’re the most affordable student loan that the Department of Education offers, since they come with an interest subsidy. This means the government covers interest charges while you’re enrolled in school at least half-time and during other periods of student loan deferment.
For example, if you borrow $10,000 in subsidized loans during your freshman year, you’ll still owe $10,000 at the end of your grace period — no additional interest charges will accrue.
For the 2023-24 academic year, Direct Subsidized Loans come with a fixed interest rate of 5.50% and a loan fee of 1.057%. They’re eligible for a variety of repayment plans, including the 10-year standard plan, extended repayment, graduated repayment, and income-driven repayment.
These loans are also subject to annual borrowing limits. For dependent students, the limits are $3,500 for your first year, $4,500 for your second year, and $5,500 for your third year and beyond. The total aggregate subsidized loan limit for undergraduates is $23,000.
Note:
Your school will ultimately determine the exact amount you can borrow, and that amount can’t be greater than your financial need.
Direct Unsubsidized Loans
Unlike subsidized loans, Direct Unsubsidized Loans don’t come with an interest subsidy. These loans start accruing interest from the date of disbursement, so if you don’t make payments while you’re in school, you could face significant interest charges by the end of your grace period.
On the plus side, Direct Unsubsidized Loans are available to both undergraduate and graduate students, and they don’t have a financial need requirement. Anyone who’s eligible for federal financial aid can access Direct Unsubsidized Loans.
In the 2023-24 school year, Direct Unsubsidized Loans come with a fixed interest rate of 5.50% for undergraduates and 7.05% for graduate and professional students, as well as a loan fee of 1.057%. Similar to Direct Subsidized Loans, Direct Unsubsidized Loans are eligible for a variety of repayment plans, including the standard, extended, graduated, and income-driven plans.
Unsubsidized student loans also have higher borrowing limits, with an aggregate limit for dependent undergraduate students of $31,000, and $138,500 for graduate or professional students.
Note:
Your school will determine the exact amount you can borrow, based on the school’s cost of attendance and other financial aid you may receive.
Subsidized vs. unsubsidized loans: Key differences
| | |
---|
| | Undergraduate and graduate/professional students |
| Must demonstrate financial need | No financial need requirement |
| Government covers interest while you’re in school, during your grace period, and during other periods of deferment | Available to undergraduate and graduate studentsNo financial need requirementHigher borrowing limits |
| Financial need requirementOnly available to undergraduatesLower borrowing limits | Borrower is responsible for interest charges from the date of disbursementHigher interest rate for graduate students |
| | 5.50%* for undergraduates7.05%* for graduate students |
| | |
[*Federal student loan rates are for the 2023-24 academic school year]
How to choose between subsidized and unsubsidized debt
It’s generally a good idea to max out your eligibility for subsidized loans before turning to unsubsidized options. Subsidized loans have lower costs of borrowing than unsubsidized loans, since the government covers interest charges while you’re in school and during your grace period.
If you’ve hit your borrowing limits and need additional funding for school, an unsubsidized federal loan could make sense. Even though these don’t come with an interest subsidy, they do have relatively low fixed interest rates, easy-to-meet eligibility requirements, and flexible repayment options.
To access Direct Subsidized and Unsubsidized Loans, you must submit the Free Application for Federal Student Aid (FAFSA) on a yearly basis.
Check Out: How To Register for the FAFSA
Alternatives to subsidized and unsubsidized loans
Direct Subsidized and Unsubsidized Loans aren't your only source of funding for college. Here are some other options that can help you cover costs:
- Grants and scholarships: Pursuing grants and scholarships could seriously pay off, as these are a form of gift aid that you typically don’t have to pay back. Use scholarship search engines and ask your school counselor or financial aid office about award opportunities.
- Work-study: Students with financial need might also qualify for the federal work-study program, which connects students with part-time on- and off-campus jobs. The positions pay at least federal minimum wage and are often related to your course of study.
- Income from a part-time job: If you don’t qualify for work-study, you could also consider working part-time as you earn your degree, and potentially borrow less in student loans.
- Direct PLUS Loans: Graduate students and parents of undergraduates can also borrow federal Direct PLUS Loans. You can borrow up to your school’s cost of attendance, minus any other financial aid you’ve received. These loans require that you don’t have adverse credit or, if you do, that you apply with an endorser who has strong credit. You must also undergo credit counseling.
- Private loans: Private student loans from a bank, credit union, or online lender are another option. Interest rates and terms will vary by lender, and borrowers with good or excellent credit will get the lowest rates.
Advertiser DisclosureLoan Amounts
$1,000 up to 100% of the school-certified cost of attendance
Overview
College Ave offers a wide range of in-school loans for nearly every type of degree. There are a number of repayment options, and borrowers can choose a unique eight-year repayment term. Plus, graduate, dental, and medical students receive extended grace periods.
You may get easy funding for multiple years — 90% of undergraduates are approved for additional student loans when they apply with a cosigner. However, it can be difficult to remove a cosigner for your loan later on, as you must complete at least half of your repayment term before becoming eligible. That’s significantly longer than some lenders, which may only require one to two years of payments before releasing a cosigner.
Loan terms
5, 8, 10, or 15 years for most borrowers (law, dental, medical, and other health profession students have up to 20 years)
Loan amounts
$1,000 minimum up to your school’s annual cost of attendance; lifetime limits depend on your degree and credit profile
Cosigner release
After half of the scheduled repayment period has elapsed
Eligibility
Must be a U.S. citizen or permanent resident at an eligible institution. International students with a Social Security number and a qualified cosigner may also qualify. Applicants who can’t meet financial, credit, or other requirements may qualify with a cosigner.
Read full reviewOverview
Ascent offers several unique borrowing options that you don’t typically see with private lenders. In addition to traditional student loans for undergraduate, graduate, and medical programs, college juniors and seniors may qualify for its Outcomes-Based Loan — which doesn’t require established credit or a cosigner. Instead, Ascent reviews alternate factors such as your school, major, and GPA to determine your eligibility.
Ascent also offers a wide range of loan terms and repayment plans to choose from. You may even qualify for its Progressive Repayment plan, which allows you to start with small payments that gradually increase over time. Borrowers who use a cosigner can release them after as few as 12 payments, though international students don’t qualify for this option.
Loan terms
5, 7, 10, 12, 15, or 20 years
Loan amounts
$2,001 minimum up to your school’s annual cost of attendance; lifetime limits of $200,000 for undergrads and $400,000 for graduates
Eligibility
Must be a U.S. citizen or DACA student enrolled at least half time at an eligible institution. International students with a qualified cosigner may also qualify. Applicants who can’t meet financial, credit, or other requirements may qualify with a cosigner.
Read full reviewLoan Amounts
$1,000 to $99,999 annually ($180,000 aggregate limit)
Overview
Powered by Cognition Financial, Custom Choice offers student loans for undergraduate and graduate students starting at $1,000. You can borrow up to $99,999 per year with a total aggregate limit of $180,000.
If you apply with a cosigner, you may be able to release them from your loan after 36 on-time payments. You can also receive a 0.25 percentage point discount on your interest rate by setting up autopay, as well as a 2% reduction of your principal balance after graduating.
Custom Choice doesn’t charge application, origination, prepayment, or late fees. It also lets you pause payments through forbearance if you qualify for its natural disaster or unemployment protection programs.
Loan amounts
$1,000 to $99,999 per year (lifetime limit of $180,000)
Eligibility
Must be a U.S. citizen or permanent resident at an eligible institution. You must also meet Custom Choice’s underwriting criteria for income and credit, or apply with a cosigner who does. Eligible noncitizens such as DACA residents can also qualify by applying with a cosigner who’s a U.S. citizen or permanent resident.
Read full reviewLoan Amounts
$1,000 to $350,000 (depending on degree)
Overview
Citizens offers a variety of student loan types, including loans for undergraduates, graduate students, and parents. Perhaps the most unique feature of Citizens student loans is the option for multiyear approval. If you qualify, you can apply once and borrow for future years with a more streamlined process that only involves a soft credit inquiry.
Student borrowers can defer payments while in school and for six months after graduating. You can also score a 0.25 percentage point reduction on your interest rate for setting up autopay, as well as an additional 0.25 percentage point loyalty discount if you or your cosigner already have a qualifying account with Citizens.
Loan terms
5, 10, or 15 years for student loans; 5 or 10 years for parent loans
Loan amounts
$1,000 minimum, up to a maximum of $150,000 for undergraduate and graduate degrees; $250,000 for MBA and law; and $180,000 or $350,000 for health care student loans, depending on the degree type
Eligibility
Must be a U.S. citizen or permanent resident enrolled at least half-time in a degree-granting program at an eligible institution. International students can apply with a cosigner who’s a U.S. citizen or permanent resident.
Read full reviewLoan Amounts
$1,000 up to 100% of school-certified cost of attendance
Overview
Sallie Mae offers the Smart Option Student Loan to undergraduate and graduate students. You can borrow up to your school-certified cost of attendance and apply just once annually to get the funds you need for the entire academic year. Plus, it may be easy to get reapproved for your future years of study — undergraduates have a 97% approval rate when they return to Sallie Mae with a cosigner.
Through Sallie Mae, you can find a variety of loans designed for specific needs, including loans for MBA programs, law school, bar study, medical school, medical residency, dental programs, dental residency, and other health profession programs. However, this lender no longer offers a career training loan.
Loan terms
10 to 15 years for Smart Option Student Loan; up to 15 years for law school and bar study loans; up to 20 years for medical school, medical residency, dental school, dental residency, and health professions loans
Loan amounts
$1,000 up to school-certified cost of attendance
Eligibility
Must be a U.S. citizen or permanent resident enrolled in an eligible program. Noncitizens may qualify by applying with a cosigner who’s a U.S. citizen or permanent resident.
Read full reviewLoan Amounts
$1,001 up to 100% of school certified cost of attendance
Overview
INvested is an Indiana company that offers affordable student loans exclusively to state residents. Loans are available to Indiana students and parents who can meet income and credit requirements, or who have an eligible cosigner. Borrowers can borrow as little as $1,001 or as much as the school-certified cost of attendance minus other aid.
INvested provides detailed information on eligibility so borrowers can quickly determine whether to apply for a loan — however, there’s no option to prequalify with a soft credit check. Cosigner release is also available after just 12 on-time payments, considerably shorter than many other lenders.
Loan amounts
$1,001 minimum, up to the school certified cost of attendance
Eligibility
Loans are available to Indiana residents only. Borrowers must have a FICO score of 670 or higher, a 30% maximum debt-to-income ratio or minimum monthly income of $3,333, continuous employment over two years, and no major collections or defaults in recent years. Borrowers who do not meet income or credit requirements can apply with a cosigner.
Read full reviewLoan Amounts
$1,500 up to school’s certified cost of attendance less aid
Overview
Massachusetts Educational Financing Authority (MEFA) is a not-for-profit lender that offers low-cost undergraduate and graduate school loans to students nationwide. While only fixed-rate loans are available, interest costs may be lower than what you see with other private loans.
While you can apply with a cosigner to lock in the best rate possible, removing that cosigner later may be tough. Only one repayment plan allows cosigner release, and you must make four years of consecutive on-time payments and meet other credit and income requirements to qualify.
Loan amounts
$1,500 minimum up to school-certified cost of attendance
Eligibility
Must be a U.S. citizen or permanent resident, enrolled at least half time at a degree-granting, nonprofit institution, and must maintain satisfactory academic progress. Must have no history of default on an education loan and no history of bankruptcy or foreclosure in the past 60 months. Applicants who can’t meet the minimum credit and income requirements may apply with a cosigner.
Read full reviewOverview
Education Loan Finance (ELFI) is a division of Tennessee-based SouthEast Bank owned by Education Loan Finance, Inc., a non-profit whose mandate is to provide access to higher education. ELFI launched in 2015 and offers undergraduate, graduate, and parent private student loans as well as student loan refinancing.
ELFI student loans and refinance loans are available to residents in all U.S. states including Puerto Rico. Borrowers can benefit from no application, origination, or prepayment fees. ELFI also offers flexible repayment terms and competitive rates, however there’s no cosigner release option and the lender doesn’t offer any discounts.
Loan amounts
$1,000 - Cost of attendance
Cosigner release
A cosigner may not be taken off a loan, but the borrower can apply for a new loan without their cosigner.
Eligibility
All 50 states as well as Washington DC and Puerto Rico.
Read full reviewMeet the expert:
Rebecca Safier
Rebecca Safier has over eight years of experience writing on personal finance and higher education. Formerly a senior writer for LendingTree and Student Loan Hero, she’s covered student loans, financial aid, personal loans, budgeting, and more. She loves helping people make informed financial decisions. When she’s not writing, you can find her blogging on her personal site Remote Bliss.