Subsidized and unsubsidized student loans are federal student loans for the eligible students to assist cover the cost of higher education at a four-year college or university, college, career, or technical school. The United States Department of Education offers the eligible students at participating schools Direct Subsidized Loans and Direct Unsubsidized Loans.
When selecting a federal student loan to pay for college, the kind of loan you take out, either subsidized or unsubsidized, will be able to affect how much you owe after graduation. If you qualify, you are going to save more money in interest with subsidized loans.
Subsidized Student Loan vs. Unsubsidized Student Loan
Both subsidized student loan and unsubsidized student loan are distributed as part of the federal direct loan program. But, if you meet the financial need requirements to qualify for subsidized student loan, then you are going to pay less over time than you would with unsubsidized student loan.
That is because your subsidized student loan for undergraduate study will bring the same interest rate as an unsubsidized student loan. Interest will not accrue when you are still in college and during other periods of nonpayment. For this reason, it is best to exhaust any subsidized student loans you are offered before taking out unsubsidized student loans.
For note: Fees of Subsidized and unsubsidized student loan: 1.057% for loans disbursed on or after October 1, 2020, and before October 1, 2021.
Subsidized
- What do you need to qualify for subsidized student loans?
To qualify for subsidized student loans, you have to demonstrate financial need. - How much you are able to borrow for subsidized student loans?
Lower loan limits compared with unsubsidized student loans - How does interest work while you are enrolled in college?
Education Department will pay interest - Who can borrow for subsidized student loans?
Only undergraduate students can borrow for subsidized student loans.
Unsubsidized
- What do you need to qualify for unsubsidized student loans?
To qualify for unsubsidized student loans, you do not have to demonstrate financial need. - How much you are able to borrow for unsubsidized student loans?
Higher loan limits compared with subsidized student loans - How interest works while you are enrolled in the college
Education Department will pay interest - Who can borrow for an unsubsidized student loan?
Undergraduate and graduate or professional degree students can borrow for unsubsidized student loans.
Other Differences Between Subsidized and Unsubsidized Student Loans
In the previous paragraph, we have explained some information about subsidized student loans versus unsubsidized student loans. Now, we are going to share other differences between Subsidized and Unsubsidized Student Loans.
Maximum eligibility period
- Subsidized
First-time borrowers on or after July 1, 2013 will be able to take out loans until 150% of the published length of their academic program. This is equal to 6 years for a typical four-year program or three years for a typical two-year program. - Unsubsidized
There is no time limit on utilizing these loans.
Loan qualifications
- Subsidized
You have to demonstrate financial need, as determined by the information you supply when you submit the FAFSA or Free Application for Federal Student Aid. - Unsubsidized
Any students are able to borrow, regardless of financial need.
Loan limits
- Subsidized
Annual loan limits will vary, however they are usually lower than unsubsidized student loan limits. For instance, a first-year dependent undergraduate student will be able to borrow $3,500 in subsidized loans, compared with $5,500 in unsubsidized student loans. The subsidized student loan limit for your entire undergraduate education is $23,000. - Unsubsidized
Annual loan limits will vary but are usually higher than subsidized student loan limits. The loan limit for the entire time you are enrolled is $31,000 for dependent undergraduate students. The unsubsidized student loan limits are $57,500 for independent undergraduate students, and $138,500 for graduate students.
Interest rates
- Subsidized
The fixed annual percentage rate is 3.73 percent for loans disbursed on or after July 1, 2021, through June 30, 2022. - Unsubsidized
The fixed APR is 3.73 percent for undergraduate loans, 5.28% for graduate or professional degree loans, and 6.28 percent for PLUS loans. Those rates apply to loans disbursed on or after July 1, 2021, through June 30, 2022.
Interest Accrues on Subsidized and Unsubsidized Student Loans – How It Works?
While in school
- Subsidized
Interest is paid by the Education Department while you are enrolled at least half time in college. - Unsubsidized
Interest begins accruing as soon as the loan is disbursed, including while the students are enrolled in school.
Grace period
- Subsidized
No payments are due in the first 6 months after you leave school. The Education Department is going to continue to pay interest during this time. - Unsubsidized
Loan payments are not due in the first 6 months after you leave school, however interest is going to continue to build. Then, it will capitalize, meaning it is added to the original amount borrowed. That improves the total amount you have to repay, and you are going to pay more in interest over time.
During deferment
- Subsidized
Interest is paid by the Education Department during deferment that allows you temporarily pause payments. - Unsubsidized
Interest continues to collect during deferment. It will be added to your own principal loan amount.
How to Get Subsidized and Unsubsidized Student Loans?
To get a federal loan, first you have to submit the FAFSA. You are going to get a report detailing how much federal aid you are entitled to. Please be sure to first take all the grants and scholarships you are offered in the report, since it is free money. Also, you want to accept any work-study you are offered before you take on loans. Each year you are enrolled, your school will decide the amount you are able to borrow as well as the loan kinds you qualify for: subsidized or unsubsidized student loan. Remember that taking on too much student loan debt can make repayment difficult after you graduate. It is best to borrow no more than you expect to earn in your first year out of college.
