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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? | Borrowers with financial need | All borrowers |
| Available to graduate or professional students? | No | Yes |
| Interest rates |
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| Aggregate loan limits (for dependent students) |
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| Aggregate loan limits (for independent students) |
|
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| Interest covered by the Department of Education |
| None |
| *Federal student loan rates are for the 2020-21 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 rates from (APR) | Variable rates from (APR) |
|---|---|---|
 | 3.62%+ | 2.73%+ |
 | 4.25%+1 | 1.25%+1 |
 | 3.99%+2,3 | 1.24%+2,3 |
 | 4.84% - 12.39%6 | 1.59% - 11.37%6 |
 | 4.09%+7 | 2.04%+7 |
 | 3.83%+8 | 1.64%+8 |
 | 3.95%+ | N/A |
 | 4.25% - 12.35%9 | 1.25% - 11.15%9 |
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Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available | 1Citizens Bank Disclosures | 2,3College Ave Disclosures | 6Discover Disclosures | 7EDvestinU Disclosures | 8INvestEd Disclosures | 9Sallie Mae Disclosures |
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Citizens Bank Student Loan Rate Disclosure Variable rate, based on the one-month London Interbank Offered Rate ("LIBOR") published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of July 1, 2020, the one-month LIBOR rate is 0.18%. Variable interest rates range from 1.25%-11.40% (1.25%-11.01% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.25%-11.95% (4.25% - 11.53% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co- signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan. |
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