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Which to Borrow: Subsidized vs. Unsubsidized Student Loans
Anyone can borrow unsubsidized federal loans, but those who qualify for the subsidized version save more money in interest.
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Anna Helhoski is a senior writer covering economic news and trends in consumer finance at NerdWallet. She is also an authority on student loans. She joined NerdWallet in 2014. Her work has appeared in The Associated Press, The New York Times, The Washington Post and USA Today. She previously covered local news in the New York metro area for the Daily Voice and New York state politics for The Legislative Gazette. She holds a bachelor's degree in journalism from Purchase College, State University of New York.
When choosing a federal student loan to pay for college, the type of loan you take out — either subsidized or unsubsidized — will affect how much you owe after graduation. If you qualify, you’ll save more money in interest with subsidized loans.
NerdWallet ratingNerdWallet's ratings are determined by our editorial team. The scoring formula for student loan products takes into account more than 50 data points across multiple categories, including repayment options, customer service, lender transparency, loan eligibility and underwriting criteria.
Fixed APR
3.47-17.99%
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1)All rates include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation. (2)As certified by your school and less any other financial aid you might receive. Minimum $1,000. (3)This informational repayment example uses typical loan terms for a freshman borrower who selects the Flat Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.78% fixed Annual Percentage Rate (“APR”): 54 monthly payments of $25 while in school, followed by 96 monthly payments of $176.21 while in the repayment period, for a total amount of payments of $18,266.38. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 12/2/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of the Flat Repayment Option with the shortest available loan term.
Variable APR
4.99-17.99%
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1)All rates include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation. (2)As certified by your school and less any other financial aid you might receive. Minimum $1,000. (3)This informational repayment example uses typical loan terms for a freshman borrower who selects the Flat Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.78% fixed Annual Percentage Rate (“APR”): 54 monthly payments of $25 while in school, followed by 96 monthly payments of $176.21 while in the repayment period, for a total amount of payments of $18,266.38. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 12/2/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of the Flat Repayment Option with the shortest available loan term.
NerdWallet ratingNerdWallet's ratings are determined by our editorial team. The scoring formula for student loan products takes into account more than 50 data points across multiple categories, including repayment options, customer service, lender transparency, loan eligibility and underwriting criteria.
Fixed APR
3.49-15.49%
Lowest rates shown include the auto debit. Advertised APRs for undergraduate students assume a $10,000 loan to a student who attends school for 4 years and has no prior Sallie Mae-serviced loans. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent. Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan’s Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment. Advertised APRs are valid as of 11/25/2024. Loan amounts: For applications submitted directly to Sallie Mae, loan amount cannot exceed the cost of attendance less financial aid received, as certified by the school. Applications submitted to Sallie Mae through a partner website will be subject to a lower maximum loan request amount. Miscellaneous personal expenses (such as a laptop) may be included in the cost of attendance for students enrolled at least half-time. Examples of typical costs for a $10,000 Smart Option Student Loan with the most common fixed rate, fixed repayment option, 6-month separation period, and two disbursements: For a borrower with no prior loans and a 4-year in-school period, it works out to a 10.28% fixed APR, 51 payments of $25.00, 119 payments of $182.67 and one payment of $121.71, for a Total Loan Cost of $23,134.44. For a borrower with $20,000 in prior loans and a 2-year in-school period, it works out to a 10.78% fixed APR, 27 payments of $25.00, 179 payments of $132.53 and one payment of $40.35 for a total loan cost of $24,438.22. Loans that are subject to a $50 minimum principal and interest payment amount may receive a loan term that is less than 10 years. A variable APR may increase over the life of the loan. A fixed APR will not.
Variable APR
4.92-15.08%
Lowest rates shown include the auto debit. Advertised APRs for undergraduate students assume a $10,000 loan to a student who attends school for 4 years and has no prior Sallie Mae-serviced loans. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent. Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan’s Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment. Advertised APRs are valid as of 11/25/2024. Loan amounts: For applications submitted directly to Sallie Mae, loan amount cannot exceed the cost of attendance less financial aid received, as certified by the school. Applications submitted to Sallie Mae through a partner website will be subject to a lower maximum loan request amount. Miscellaneous personal expenses (such as a laptop) may be included in the cost of attendance for students enrolled at least half-time. Examples of typical costs for a $10,000 Smart Option Student Loan with the most common fixed rate, fixed repayment option, 6-month separation period, and two disbursements: For a borrower with no prior loans and a 4-year in-school period, it works out to a 10.28% fixed APR, 51 payments of $25.00, 119 payments of $182.67 and one payment of $121.71, for a Total Loan Cost of $23,134.44. For a borrower with $20,000 in prior loans and a 2-year in-school period, it works out to a 10.78% fixed APR, 27 payments of $25.00, 179 payments of $132.53 and one payment of $40.35 for a total loan cost of $24,438.22. Loans that are subject to a $50 minimum principal and interest payment amount may receive a loan term that is less than 10 years. A variable APR may increase over the life of the loan. A fixed APR will not.
Credible lets you check with multiple student loan lenders to get rates with no impact to your credit score. Visit their website to take the next steps.
Lower loan limits compared with unsubsidized loans
Higher loan limits compared with subsidized loans
How interest works while you're enrolled in college
Education Department pays interest
Interest accrues
Who can borrow
Undergraduate students only
Undergraduate and graduate or professional degree students
Subsidized vs. unsubsidized student loans
Both subsidized and unsubsidized loans are distributed as part of the federal direct loan program. However, if you meet the financial need requirements to qualify for subsidized loans, you’ll pay less over time than you would with unsubsidized loans.
That’s because while your subsidized loan for undergraduate study will carry the same interest rate as an unsubsidized loan, interest won’t accrue while you’re still in college and during other periods of nonpayment. For this reason, it’s best to exhaust any subsidized loans you’re offered before taking out unsubsidized loans.
Here are the main differences between subsidized and unsubsidized student loans:
Who can borrow loans
Subsidized: Undergraduate students enrolled at least half time.
Unsubsidized: Undergraduate, graduate and professional degree students enrolled at least half time.
Subsidized: First-time borrowers on or after July 1, 2013 can take out loans until 150% of the published length of their academic program. This is equal to six years for a typical four-year program or three years for a typical two-year program.
Unsubsidized: There is no time limit on using these loans.
Loan qualifications
Subsidized: You must demonstrate financial need, as determined by the information you supply when you submit the Free Application for Federal Student Aid, or FAFSA.
Unsubsidized: Any students can borrow, regardless of financial need.
Loan limits
Subsidized: Annual loan limits vary, but they are typically lower than unsubsidized loan limits. For example, a first-year dependent undergraduate student can borrow $3,500 in subsidized loans, compared with $5,500 in unsubsidized loans. The subsidized loan limit for your entire undergraduate education is $23,000.
Unsubsidized: Annual loan limits vary but are typically higher than subsidized loan limits. The loan limit for the entire time you’re enrolled is $31,000 for dependent undergraduate students. The limits are $57,500 for independent undergraduate students and $138,500 for graduate students, who are considered independent.
Subsidized and unsubsidized: 1.057% for loans disbursed on or after Oct. 1, 2020, and before Oct. 1, 2021.
Interest rates
Subsidized: The fixed annual percentage rate is 4.99% for loans disbursed on or after July 1, 2022, through June 30, 2023.
Unsubsidized: The fixed APR is 4.99% for undergraduate loans; 6.54% for graduate or professional degree loans; and 7.54% for PLUS loans. These rates apply to loans disbursed on or after July 1, 2022, through June 30, 2023.
How interest accrues on subsidized and unsubsidized loans
While in school
Subsidized: Interest is paid by the Education Department while you're enrolled at least half time in college.
Unsubsidized: Interest begins accruing as soon as the loan is disbursed, including while students are enrolled in school.
Subsidized: No payments are due in the first six months after you leave school. The Education Department will continue to pay interest during this time.
Unsubsidized: Loan payments are not due in the first six months after you leave school, but interest will continue to build. It will then capitalize, meaning it’s added to the original amount borrowed. That increases the total amount you have to repay, and you’ll pay more in interest over time.
During deferment
Subsidized: Interest is paid by the Education Department during deferment, which lets you temporarily pause payments.
Unsubsidized: Interest continues to collect during deferment and will be added to your principal loan amount.
How to get subsidized and unsubsidized loans
To get a federal loan, first submit the FAFSA. You’ll get a report detailing how much federal aid you’re entitled to. Be sure to first take all the grants and scholarships you’re offered in the report, since it’s free money. You’ll also want to accept any work-study you’re offered before you take on loans. Each year you’re enrolled, your school will determine the amount you can borrow as well as the loan types you qualify for: subsidized or unsubsidized.
Taking on too much student loan debt may make repayment difficult after you graduate. It’s best to borrow no more than you expect to earn in your first year out of college.
The year’s best student loans
Smarter student loan decisions start with our Best-Of Awards. Shop the private loans our Nerds love.
Borrow federal loans first: Private student loans often carry higher interest rates and require a co-signer if a student borrower has no credit history. Both unsubsidized and subsidized federal loans also offer more borrower repayment plans and forgiveness options than private loans.
Consider private loans only if you still need to fill a payment gap to meet college costs. Compare all private loan options, including their interest rates as well as repayment and forbearance options, before you borrow.
