What Is a Federal Direct Unsubsidized Loan?

Credible takeaways

• Federal unsubsidized loans are best for undergraduate, graduate, and professional students who don't demonstrate financial need.
• Unlike subsidized loans, you’re responsible for paying the interest on unsubsidized loans while you’re in school and during the grace period. 
• Unsubsidized loans generally have lower interest rates than private student loans.
• Borrowing limits for unsubsidized loans vary depending on your year in school and dependency status.

If you need to borrow money for college, federal student loans are the best place to start. Not only do federal loans come with generous borrower benefits, they often come with lower fixed interest rates compared to private student loans. 

Among the most common federal loans are unsubsidized and subsidized student loans. You’ll pay less interest on subsidized loans, but only undergraduate students with financial need can qualify for them. If you don’t qualify for subsidized loans, federal unsubsidized loans are your next best option for several reasons. 

What is a federal unsubsidized loan?

A federal unsubsidized loan is a type of Direct Loan offered by the U.S. Department of Education. You can use an unsubsidized loan for undergraduate, graduate, or professional school, and you don't need to demonstrate financial need to qualify.

Interest rates on unsubsidized loans are fixed. The interest starts accruing as soon as the loan is disbursed, but you have the option to defer payments until six months after leaving school or dropping below half-time enrollment. If you choose to postpone payments, keep in mind that interest will capitalize once repayment begins, meaning it’ll get added onto your principal loan balance.

As with many federal student loans, repayment options are flexible with unsubsidized loans, and loan forgiveness is possible in certain circumstances.

Federal unsubsidized loan key facts

• Who qualifies: All undergraduate, graduate, and professional students
• Interest rate for 2023-24: 5.50% for undergraduate borrowers; 7.05% for graduate or professional borrowers
• Repayment terms: Standard, Extended, Graduated, and income-driven repayment (IDR) plans available
• Aggregate loan limits: $31,000 for dependent undergraduates; $57,000 for independent undergraduates; $138,500 for graduate or professional students
• How to apply: Submit the Free Application for Federal Student Aid (FAFSA)

Unsubsidized vs. subsidized loans

Both Direct Subsidized Loans and Direct Unsubsidized Loans are federal student loan types intended to help cover the cost of tuition, but they have some key differences. 

If you’re an undergraduate student with financial need, you'll generally find more favorable terms with subsidized loans. Unlike unsubsidized loans, the government covers all interest charges while you’re enrolled in school at least half-time, during your grace period, and during periods of deferment.

Related: Subsidized vs. Unsubsidized Student Loans

Who qualifies for unsubsidized loans?

Unlike federal subsidized loans, eligibility for an unsubsidized loan isn’t based on financial need. To qualify, you need to be enrolled at least half-time in a school that participates in the Direct Loan program and that awards a degree or certification upon completion of requirements.

You also need to meet the general requirements for federal financial aid, which include:

• Be a U.S. citizen or eligible noncitizen.
• Have a valid Social Security number (note that there are some exceptions).
• Register for the FAFSA and sign the certification statement.
• Be enrolled in or accepted to a degree or certificate program.
• Demonstrate that you're eligible to obtain a college or career school education.
• Maintain satisfactory academic progress.

Borrowing limits for unsubsidized loans 

Federal unsubsidized loans come with annual borrowing limits each year you’re in school, and aggregate limits over the lifetime of the loan. 

Here's a breakdown of how much you can borrow annually, depending on your year in school and whether you are a dependent or independent student. Note that the category of independent students includes dependent undergraduates whose parents can’t obtain PLUS loans.

Annual loan limits

Aggregate loan limits

Similarly, aggregate unsubsidized loan limits also vary depending on student status:

Related: How Much Can FAFSA Give You?

How repayment works

If you have federal unsubsidized loans, you have the option to postpone payments for six months after graduating, leaving school, or dropping below half-time enrollment. 

However, interest on unsubsidized loans starts accruing the day your loan is disbursed. So if you choose to defer payments, any unpaid interest will get tacked onto your principal loan balance at the end of your grace period, making repayment more expensive.

If you can afford to, it’s a good idea to pay off interest while you’re in school and during your grace period. This way you’ll prevent interest from capitalizing once repayment begins.

Repayment plans

Once repayment begins, you'll have a number of repayment options, including:

• Standard Repayment: Unsubsidized loans are automatically placed on the standard 10-year repayment plan unless you choose another option. 
• Extended Repayment: The Extended Repayment plan offers more time, with fixed or graduated payments made over a period of 25 years. Note you must have more than $30,000 in outstanding Direct Loans to qualify.
• Graduated Repayment: Your monthly payment amounts start lower and gradually increase over time, usually going up every 2 years. The payoff timeline is 10 years.
• Income-driven repayment: Your monthly payments on an income-driven plan are based on your discretionary income and family size. For instance, you might pay 10% to 20% of your discretionary income each month, depending on the plan you're on. After a certain number of qualifying payments, any remaining balance is forgiven.

Forgiveness for unsubsidized loans

In certain circumstances, it’s possible to have your unsubsidized loan balance forgiven. You may qualify for forgiveness if:

• You're on an income-driven repayment plan: It's possible to access loan forgiveness if you repay your unsubsidized loans under an income-driven repayment (IDR) plan. After making a certain number of payments over a period of 10 to 25 years, your remaining loan balance can be discharged.
• You're a teacher: Forgiveness for teachers is available for educators who meet certain requirements. For example, you can receive up to $17,500 in forgiveness as part of Teacher Loan Forgiveness.
• You're an employee of the government or a not-for-profit: Government employees, military service members, and those who work for qualifying not-for-profit organizations may be able to receive Public Service Loan Forgiveness (PSLF). Under this program, the remaining balance on your Direct Loan is forgiven after making 120 qualifying payments while working for a qualifying employer. 
• You're a medical professional: Nurses, doctors, and other medical professionals can also be eligible for Public Service Loan Forgiveness if they work for a qualifying not-for-profit organization. 

How to apply for a federal unsubsidized loan

To apply for an unsubsidized loan, the first step is to fill out the FAFSA. Schools rely on this form to determine how much federal financial aid you're eligible to receive.

You can fill out the FAFSA online at StudentAid.gov, or you can fill out the form manually and mail it in for processing. When completing the FAFSA, you'll need to provide information and documentation about yourself and your parents, such as your Social Security numbers and federal tax information. You’ll also need to provide a list of up to 20 schools you plan on applying to. 

Once you submit the FAFSA, the schools you've sent it to will review your information and get back to you with a financial aid offer, which may include unsubsidized loans. 

Other types of student loans

Unsubsidized loans aren't your only option. Other types of student loans to consider include:

• Subsidized loans: Subsidized loans are another type of federal Direct Loan specifically for undergraduates with financial need. Unlike unsubsidized loans, the U.S. Department of Education pays the interest while you're in school at least half-time, and for the first 6 months after you leave school and during any deferment.
• Direct PLUS Loans: Direct PLUS Loans are another option for graduate or professional students. This type of federal loan is also available to parents borrowing money for dependent undergraduate students. A credit check is involved, and you can't have a poor credit history.
• Private student loans: If you've tapped out federal loans and need more funds, you can turn to private student loans to help cover your costs. These loans are funded by lenders, like banks or credit unions, as opposed to the federal government. They usually involve a credit check, and tend to have higher interest rates and fewer repayment options.

Frequently asked questions

What are the pros and cons of unsubsidized loans?

Compared to private student loans, federal unsubsidized loans offer fixed interest rates that tend to be lower. They also offer flexible repayment terms, and it's not necessary to demonstrate financial need to qualify. However, unlike with subsidized loans, interest begins to accrue as soon as the loan is taken out, and the borrower is responsible for paying interest during all periods. 

Should I get an unsubsidized student loan? 

Whether or not you can get a federal unsubsidized loan depends on the financial aid offer you receive after filling out the FAFSA. In general, federal student loans are more favorable than private student loans, as they tend to have lower interest rates and more flexible repayment options.

Is a subsidized or unsubsidized loan better?

Subsidized loans have slightly better terms than unsubsidized loans, namely because the government pays the interest on subsidized loans while you’re enrolled in school and during periods of deferment (like your grace period). However, only undergraduate students with financial need are eligible for subsidized loans.

Do unsubsidized loans qualify for forgiveness?

Yes, in certain circumstances, unsubsidized loans may qualify for forgiveness. For instance, you may secure loan forgiveness if you're a teacher who's eligible for Teacher Loan Forgiveness. It's also possible to qualify for Public Service Loan Forgiveness. Individuals on income-driven repayment plans may also receive loan forgiveness after making a certain number of qualifying payments on their unsubsidized loans.

Rebecca Safier has contributed to the reporting of this article.