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Which to Borrow: Subsidized vs. Unsubsidized Student Loans
Anyone can borrow unsubsidized federal loans, but those who qualify for subsidized loans 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 cohosts and produces Money News segments of NerdWallet's Smart Money podcast. She is also an authority on student loans. She joined NerdWallet in 2014. Her work has been syndicated in news outlets nationwide including 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.
Kim Lowe is Head of Content for NerdWallet's Personal and Student Loans team. She joined NerdWallet in 2016 after 15 years at MSN.com, where she held various content roles including editor-in-chief of the health and food sections. Kim started her career as a writer for print and web publications that covered the mortgage, supermarket and restaurant industries. Kim earned a bachelor's degree in journalism from the University of Iowa and a Master of Business Administration from the University of Washington. She works from her home near Portland, Oregon.
Head of Content, Personal & 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 pay less 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
3.19-17.99%
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 6/30/2025. 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
4.24-17.99%
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 6/30/2025. 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
3.19-16.99%
Lowest rates shown include the auto debit discount. 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 6/23/2025. 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
4.37-16.49%
Lowest rates shown include the auto debit discount. 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 6/23/2025. 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.
Subsidized student loans are provided for undergraduate students who need help paying for higher education. You must demonstrate financial need to qualify for a subsidized student loan.
Loan terms tend to be more favorable on subsidized loans, and the Education Department pays the interest while you’re enrolled in college. On the other hand, the maximum amount you can receive in subsidized loans is lower.
Unsubsidized loans are available to undergraduate and graduate students. You do not need to demonstrate financial need to be eligible, and loan limits are higher compared with subsidized loans. But borrowers are responsible for paying all the interest on unsubsidized loans.
Subsidized vs. unsubsidized student loans
The Education Department offers both subsidized and unsubsidized loans as part of the federal direct loan program. If you meet the financial need requirements to qualify for subsidized loans, you’ll pay less than you would with unsubsidized loans.
That’s because while subsidized loans for undergraduate study carry the same interest rate as unsubsidized loans, interest doesn’t accrue while you’re 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:
Subsidized student loans
Unsubsidized student loans
Who can borrow
Undergraduate students enrolled at least half time.
Undergraduate, graduate and professional degree students enrolled at least half time.
Maximum eligibility period
First-time borrowers on or after July 1, 2013, can take out loans for about six years for a typical four-year program or three years for a typical two-year program.
There is no time limit on using these loans.
Loan qualifications
You must demonstrate financial need, as determined by the information you submit on the Free Application for Federal Student Aid, or FAFSA.
Any student can borrow, regardless of financial need.
Loan limits
Annual loan limits vary. For example, a first-year dependent undergraduate student can borrow $3,500. The subsidized loan limit for your entire undergraduate education is $23,000.
Annual loan limits vary. 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.
Fees
1.057% for loans disbursed on or after Oct. 1, 2020.
1.057% for loans disbursed on or after Oct. 1, 2020.
Interest rates
The fixed interest rate is 6.39% for loans disbursed between July 1, 2025 and June 30, 2026.
The fixed interest rate is 6.39% for undergraduate loans; 7.94% for direct graduate or professional degree loans; and 8.94% for PLUS loans. These rates apply to loans disbursed between July 1, 2025 and June 30, 2026.
Interest while in school
Interest is paid by the Education Department while you're enrolled at least half time in college.
Interest begins accruing as soon as the loan is disbursed, including while students are enrolled in school.
Interest during grace period
No payments are due in the first six months after you leave school. The Education Department continues to pay interest during this time.
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.
Interest during deferment
Interest is paid by the Education Department during deferment, which lets you temporarily pause payments.
Interest continues to collect during deferment and will be added to your principal loan amount.
The process for getting a subsidized and unsubsidized loan begins with the Free Application for Federal Student Aid, or FAFSA.
Complete the FAFSA. To get a federal loan, first submit theFAFSA.
Review financial aid options. You’ll receive a Submission Summary 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.
Consider how much to borrow. 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.
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.
