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
|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.
If you meet the financial need requirements to qualify for subsidized loans, you’ll pay less over time.
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:
Unsubsidized: Undergraduate, graduate and professional degree students enrolled at least half time.
» MORE: Am I eligible for financial aid?
Unsubsidized: There is no time limit on using these loans.
Unsubsidized: Any students can borrow, regardless of financial need.
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.
Unsubsidized: The current fixed APR is 4.53% for undergraduate loans; 6.08% for graduate or professional degree loans; and 7.08% for PLUS loans. These rates apply to loans disbursed on or after July 1, 2018, through June 30, 2019.
How interest accrues on unsubsidized and subsidized loans
Unsubsidized: Interest begins accruing as soon as the loan is disbursed, including while students are enrolled in school.
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.
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.
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.