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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Written by Anna Helhoski
Senior Writer
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Edited by Alexandra Rice
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Read more on federal 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.

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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.

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:

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.

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.

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.

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

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.

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.

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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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