Which to Borrow: Subsidized vs. Unsubsidized Student Loans

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.

» MORE: Your Guide to Financial Aid

	Subsidized	Unsubsidized
What you need to qualify	Must demonstrate financial need	Don't have to demonstrate financial need
How much you can borrow	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.

» MORE: Types of student loans: Which is best for you?

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.

» MORE: Government student loans: What are the benefits?

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.

» MORE: Am I eligible for financial aid?

Maximum eligibility period

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.

» MORE: The 150% subsidized loan limit explained

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.

» MORE: How much can you get in student loans?

Fees

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 3.73% for loans disbursed on or after July 1, 2021, through June 30, 2022.

Unsubsidized: The fixed APR, effective July 1, is 3.73% for undergraduate loans; 5.28% for graduate or professional degree loans; and 6.28% for PLUS loans. These rates apply to loans disbursed on or after July 1, 2021, through June 30, 2022.

How interest accrues on unsubsidized and subsidized 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.

» MORE: Current student loan interest rates and how they work

Grace period

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.

» MORE: How to get a student loan

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.

Taking out federal loans vs. private loans

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.

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