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Subsidized vs. Unsubsidized Student Loans: Know the Difference

Subsidized Loans can save you money over your repayment term. But there are also situations where you might choose Unsubsidized Loans, like if you’ve hit your subsidized loan limits.

Author
By Kat Tretina
Kat Tretina

Written by

Kat Tretina

Editor

Kat Tretina is a freelance writer who covers everything from student loans to personal loans to mortgages. Her work has appeared in publications like the Huffington Post, Money Magazine, MarketWatch, Business Insider, and more.

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Updated April 6, 2023

Edited by Ashley Harrison

Ashley Harrison

Written by

Ashley Harrison

Editor

Ashley Harrison is a Credible authority on personal finance who enjoys helping people become debt-free.

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances.

When you apply for federal financial aid to pay for college, you might be offered Direct Subsidized or Direct Unsubsidized Loans in your financial aid award letter.

  • With Direct Subsidized Loans, the U.S. Department of Education covers the interest that accrues while you’re in school, during your grace period after graduation, and during loan deferments.
  • With unsubsidized loans, you’re responsible for all interest that accrues.

Subsidized loans can save you thousands of dollars in interest charges in the long run. But you might need to rely on unsubsidized loans if you don’t qualify for subsidized loans or have met the subsidized loan limit.

Here’s what you need to know when choosing between subsidized vs. unsubsidized loans:

Subsidized vs. unsubsidized loans

  • Direct Subsidized Loans: Unlike other types of federal student loans, Direct Subsidized Loans are only for undergraduate students with financial need. With subsidized loans, the Department of Education will pay the interest on your loan while you’re in school at least half time, for the first six months after you graduate, and during loan deferments. You can usually borrow only a small amount in subsidized loans to pay for college.
  • Direct Unsubsidized Loans: Unsubsidized loans are available to any student regardless of their financial need. Both undergraduate and graduate as well as professional degree students can qualify for unsubsidized loans. However, you’re responsible for all of the interest that accrues on the loan, even while you’re in school. Direct Unsubsidized Loans also come with higher borrowing limits than subsidized loans, so you can take out more money to cover your education costs.

After you apply for federal student loans and are accepted to a school, you’ll receive a financial aid award letter. In this letter, you might see Direct Subsidized and Direct Unsubsidized Loans listed as two of your options. Subsidized and unsubsidized loans are two types of federal Direct student loans (also known as Federal Stafford Loans). Both offer lower student loan interest rates than private student loans, as well as federal protections.

Direct Subsidized Loans

Direct Unsubsidized Loans

Who qualifies?
Undergrad borrowers with financial need
Undergrad, graduate, and professional students (regardless of financial need)
Available to graduate or professional students?
No
Yes
Interest rates
  • Undergrad: 3.73%

  • Undergrad: 3.73%

  • Graduate or professional: 5.28%

Aggregate loan limits (for dependent students)
  • Undergrad: $23,000
  • Undergrad: $31,000
Aggregate loan limits (for independent students)
  • Undergrad: $23,000
  • Graduate or professional: $65,500
  • Undergrad: $57,500
  • Graduate or professional: $138,500
Interest covered by the Department of Education
  • While in school at least half time
  • During grace periods
  • During forbearance periods
None

Federal student loan rates are for the 2021-22 academic school year.

When to choose a subsidized loan

If you’re an undergraduate student with financial need, it’s a good idea to borrow what you can in subsidized loans before turning to unsubsidized loans. With a subsidized loan, the government covers some of your interest charges, which helps you save money over your repayment term.

When to choose an unsubsidized loan

In some cases, you’ll need to take out unsubsidized loans instead of subsidized loans, even though subsidized loans can cost you more over time. Here are a few common situations where you might choose unsubsidized loans:

  • You’re a graduate or professional degree student: Subsidized loans are only for undergraduate students. If you’re pursuing a graduate a professional degree, you’re ineligible for subsidized loans. Instead, you can take out unsubsidized loans or Direct PLUS Loans.
  • You don’t have financial need: Only students with financial need can take out subsidized loans. But unsubsidized loans are for any borrower, regardless of their financial situation.
  • You’ve reached the annual limit: The annual limits for subsidized loans are relatively low. For example, independent first-year undergraduate students can only take out $3,500 in subsidized loans. If you need more money than that to pay for school, you’ll need to take out unsubsidized loans, which have higher limits.

Learn More: How to Take Out a Student Loan

Other student loan options

Unfortunately, you might not qualify for enough federal financial aid to cover the total cost of your program. If that’s the case and you’ve reached the limit for subsidized and unsubsidized loans and still need money to pay for school, private student loans can fill the gap.

With a private student loan, you work with a private lender to borrow the money you need. Terms vary from lender to lender, but you can typically borrow up to the total cost of attendance.

It’s a good idea to compare offers from as many private student loan lenders as possible to find the best loan for you. Credible makes it easy to do just that — plus, you only have to fill out one form instead of multiple applications.

Lender

Fixed (APR)

Loan Term

0

Credible rating

4.48%+

5.98%+

5, 7, 10, 12, 15, 20 yrs

  • Fixed rates from (APR): 4.48%+
  • Variable rates from (APR): 5.98%+
  • Repayment terms (years): 5, 7, 10, 12, 15, 20
  • Min. credit score: Does not disclose
  • Loan amount: $2,001 - $400,000
  • Repayment options: Full deferral, fixed/flat repayment, interest only, academic deferment, military deferment, forbearance, loans discharged upon death or disability
  • Fees: None
  • Discounts: 0.25% to 1.00% automatic payment discount, 1% cash back graduation reward
  • Eligibility: Must be a U.S. citizen or permanent resident or DACA student enrolled at least half-time in a degree-seeking program
  • Customer service: Email, phone
  • Soft credit check: Yes
  • Cosigner release: After 24 months
  • Loan servicer: Launch Servicing, LLC

0

Credible rating

4.43%+

6.02%+

5, 10, 15 yrs

  • Fixed rates from (APR): 4.43%+
  • Variable rates from (APR): 6.02%+
  • Repayment terms (years): 5, 10, 15
  • Min. credit score: 720
  • >
  • Loan amount: $1,000 - $350,000 (depending on degree)
  • Repayment options: Full deferral, full monthly payment, interest only, immediate repayment, academic deferment, military deferment, forbearance, loans discharged upon death or disability
  • Fees: Late fee
  • Discounts: Autopay, loyalty
  • Eligibility: Available in all 50 states (international students can apply with a creditworthy U.S. citizen or permanent resident cosigner)
  • Customer service: Email, phone, chat
  • Soft credit check: Yes
  • Cosigner release: After 36 months
  • Loan servicer: Firstmark Services

0

Credible rating

4.44%+

4.99%+

5, 8, 10, 15, 20 yrs

  • Fixed rates from (APR): 4.44%+
  • Variable rates from (APR): 4.99%+
  • Repayment terms (years): 5, 8, 10, 15, 20
  • Min. credit score: Does not disclose
  • Loan amount: $1,000 up to 100% of the school-certified cost of attendance
  • Repayment options: Full deferral, full monthly payment, fixed/flat repayment, interest only, immediate repayment, academic deferment, forbearance, loans discharged upon death or disability
  • Fees: Late fee
  • Discounts: Autopay
  • Eligibility: Must be a U.S. citizen or permanent resident and be making satisfactory academic progress.
  • Customer service: Email, phone
  • Soft credit check: Yes
  • Cosigner release: After 24 months
  • Loan servicer: University Accounting Service LLC

0

Credible rating

3.65%+

6.14%+

7, 10, 15 yrs

  • Fixed rates from (APR): 3.65%+
  • Variable rates from (APR): 6.14%+
  • Repayment terms (years): 7, 10, 15
  • Min. credit score: Does not disclose
  • Loan amount: $1,000 to $99,999 annually ($180,000 aggregate limit)
  • Repayment options: Full deferral, immediate repayment, interest-only repayment, flat/full repayment, academic deferment, military deferment, forbearance, loans discharged upon death or disability
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Must be a U.S. citizen or permanent resident
  • Customer service: Email, phone
  • Soft credit check: Yes
  • Min. income: Does not disclose
  • Cosigner release: After 36 months
  • Loan servicer: American Education Services

0

Credible rating

7.00%+

7.79%+

7, 10, 15 yrs

  • Fixed rates from (APR): 7.00%+
  • Variable rates from (APR): 7.79%+
  • Repayment terms (years): 7, 10, 15
  • Min. credit score: 750
  • Loan amount: $1,000 - $200,000
  • Repayment options: Full deferral, full monthly payment, interest only, immediate repayment, academic deferment, loans discharged upon death or disability
  • Fees: Late fee
  • Discounts: Autopay
  • Eligibility: Must be a U.S. citizen or permanent resident and have a minimum income of $30,000.
  • Customer service: Email, phone
  • Soft credit check: Yes
  • Cosigner release: After 36 months
  • Loan servicer: Granite State Management & Resources (GSM&R)

0

Credible rating

4.37%+

6.85%+

5, 10, 15 yrs

  • Fixed rates from (APR): 4.37%+
  • Variable rates from (APR): 6.85%+
  • Repayment terms (years): 5, 10, 15
  • Min. credit score: 670
  • Loan amount: $1,001 up to 100% of school certified cost of attendance
  • Repayment options: Full deferral, full monthly payment, interest only, immediate repayment, academic deferment, forbearance
  • Fees: Late fee
  • Discounts: Autopay, reward for on-time graduation
  • Eligibility: Must be an Indiana resident or a U.S. citizen attending an eligible Indiana school
  • Customer service: Email, phone, chat
  • Soft credit check: Yes
  • Cosigner release: After 48 months
  • Loan servicer: American Education Services

0

Credible rating

4.89%+

N/A

10, 15 yrs

  • Fixed rates from (APR): 4.89%+
  • Variable rates from (APR): N/A
  • Repayment terms (years): 10, 15
  • Min. credit score: 670
  • Loan amount: $1,500 or $2,000 up to school’s certified cost of attendance (depending on school type and minus other aid received)
  • Repayment options: Full deferral, interest only, immediate repayment
  • Fees: None
  • Discounts: None
  • Eligibility: Must be a U.S. citizen or permanent resident and be making satisfactory academic progress.
  • Customer service: Email, phone
  • Soft credit check: Yes
  • Cosigner release: After 48 months
  • Loan servicer: American Education Services (AES)

0

Credible rating

4.50%+

5.99%+

5 - 10 yrs

  • Fixed rates from (APR): 4.50%+
  • Variable rates from (APR): 5.99%+
  • Repayment terms (years): 5 - 10
  • Min. credit score: Does not disclose
  • Loan amount: $1,000 up to 100% of school-certified cost of attendance

  • Repayment options: Full deferral, fixed/flat repayment, interest only, academic deferment, forbearance, loans discharged upon death or disability
  • Fees: Late fee
  • Discounts: Autopay
  • Eligibility: Must be a U.S. citizen or permanent resident. Also available to non-U.S. citizen students (including DACA students) attending a school located in the U.S. who apply with a qualifying cosigner.
  • Customer service: Phone
  • Soft credit check: Yes
  • Cosigner release: After 12 months
  • Loan servicer: Sallie Mae

Compare rates without affecting your credit score. 100% free!

Meet the expert: Kat Tretina

Kat Tretina

Kat Tretina is a freelance writer who covers everything from student loans to personal loans to mortgages. Her work has appeared in publications like the Huffington Post, Money Magazine, MarketWatch, Business Insider, and more.

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