What is the difference in subsidized and unsubsidized student loans

Updated on October 1, 2022

Table of Contents Show

Subsidized Student Loan
Unsubsidized Student Loan
Federal Student Loan Options: How They Compare
Annual Loan Limits
Federal Student Loan Repayment Plans
Private Loan Repayment Plans
Learn More About Federal Student Loans
What is better subsidized and unsubsidized loan?
Should I do subsidized or unsubsidized?

We know this is could be one of the most confusing parts of your financial aid offer letter. The Federal Direct Stafford Loan program has two types of loans, Direct Subsidized Loans and Direct Unsubsidized Loans. They are similar, but there are some key differences.

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Subsidized Student Loan

The most common version of a subsidized loan is a Federal Direct Stafford Loan. And you may see this specific loan under many other names on your financial aid offers, or while talking to friends and family. You may hear it referred to as a Stafford Loan, Federal Subsidized Loan, Federal Sub Loan, or just a sub loan.

Direct Subsidized loans are for undergraduate students only. The government pays the interest while you are in school and during periods of authorized deferment. This type of loan is awarded if you demonstrate financial need at your college, and there are both annual and cumulative limits you can borrow.

Additionally, there could be loans with an interest subsidy offered by your state or school as part of their financial aid offer.

Private Student Loan Rates

Variable rates starting at:

2.49% APR

Fixed rates starting at:

3.75% APR

Lowest APRs shown for Private Student Loans are available for the most creditworthy applicants for undergraduate loans, and include a 0.25% interest rate reduction while enrolled in automatic payments. Interest rates as of September 15, 2022.

Federal Student Loan Rates

For loans first disbursed July 1, 2022 through June 30, 2023

Unsubsidized Student Loan

The Federal Direct Unsubsidized Loan is also part of the Federal Direct Stafford loan program. And just like the Direct Subsidized Loan, you may see it with many different names or abbreviations, like, Stafford Unsub Loan, Federal Unsubsidized loan, Federal Unsub Loan, or just unsub loan. Unsubsidized student loans can be made available to undergraduate and graduate students.

You do not have to demonstrate financial need to qualify for an unsubsidized loan, but there are both annual and cumulative limits on how much you may borrow. This loan does not have an interest subsidy where the government pays your interest while you’re in school (are enrolled at least half-time enrollment) and during period of authorized deferment.

Federal Student Loan Options: How They Compare

Federal Student Loans Comparison

	Federal Direct Subsidized Loan	Federal Direct Unsubsidized Loan
Who can borrow?	Undergraduate Student	Undergraduate or Graduate Student
Based on demonstrated financial need?	Yes	No
Who pays the interest while in school at least half-time?	Federal Government	Borrower
Program names	Federal Direct Subsidized Loan (also known as Federal Direct Subsidized Stafford Loan)	Federal Direct Unsubsidized Loan (also known as Federal Direct Unsubsidized Stafford Loan)
Interest rates as of July 1, 2022	4.99% fixed for Direct Subsidized Loan	4.99% fixed for undergraduate students 6.54% fixed for graduate students
Loan fees for Direct Student Loans	1.057% Oct. 1, 2022 through Sept. 30, 2023	1.057% Oct. 1, 2022 through Sept. 30, 2023 for undergraduate students 1.057% Oct. 1, 2022 through Sept. 30, 2023 for graduate students
Grace Period	six months	six months
Can be used to pay for college related expenses such as	Tuition and fees Room and board Books Supplies Equipment Transportation	Tuition and fees Room and board Books Supplies Equipment Transportation

Annual Loan Limits

Direct Stafford Loan Limits

	Dependent Undergraduate	Independent Undergraduate
First Year Limits	Total Subsidized and Unsubsidized Stafford: $5,500 (no more than $3,500 can be Subsidized)	Total Subsidized and Unsubsidized Stafford: $9,500 (no more than $3,500 can be Subsidized)
Second Year Limits	Total Subsidized and Unsubsidized Stafford: $6,500 (no more than $4,500 can be Subsidized)	Total Second Year Subsidized and Unsubsidized Stafford: $10,500 (no more than $4,500 can be Subsidized)
Third Year and Above Limits	Total Subsidized and Unsubsidized Stafford: $7,500 (no more than $5,500 can be subsidized)	Total Subsidized and Unsubsidized Stafford: $12,500 (no more than $5,500 can be subsidized)

Graduate Annual Limits

Graduate and Professional School Students	Medical School Students
$20,500 Unsubsidized Loan	$40,500 Unsubsidized Loan

Aggregate (Cumulative) Loan Limits

Direct Stafford Loan Undergraduate	Direct Stafford Loan Graduate
Dependent: $31,000 (no more than $23,000 can be Subsidized)	Graduate and Professional School Students: $138,500 (includes undergraduate and graduate totals)
Independent Undergraduates $57,500 (no more than $23,000 can be Subsidized)	Medical and Health Professional Students: $224,000 (includes undergraduate and graduate totals)

Federal Student Loan Repayment Plans

Student loan borrowers can choose from a variety of repayment plans when it's time to start paying back their loans.

Repayment plans that are not based on income are:	Repayment Loans that are based on income include:
Standard Repayment Graduated Repayment Extended Repayment (without consolidation) Loan Consolidation (which may extend repayment) Alternative Repayment	Revised Pay-As-You-Earn Repayment (REPAYE)* Pay-As-You-Earn Repayment (PAYE)* Income-Based Repayment (IBR)*** Income-Contingent Repayment (ICR) Income Sensitive Repayment (ISR) available for federal loans under the FFEL program

***Federal Parent PLUS borrowers are ineligible for these repayment plans.

Private Loan Repayment Plans

As with any consumer transaction, it’s important to learn as much as possible about a loan before deciding to borrow with a specific lender – including the federal government. In short, know your rights and responsibilities and what your loan obligations might be! Always remember that the best loan is the lowest cost loan. See more advice on how to choose the best education loan.

Learn More About Federal Student Loans

Subsidized Student Loans

Unsubsidized Student Loans

Undergraduate Student Loans

Interest Rates

Loan Limits

Filing the FAFSA

FAFSA Deadlines

Financial Aid for Graduate School

What is better subsidized and unsubsidized loan?

When it comes to subsidized and unsubsidized loans, subsidized loans are the clear winner. If you can qualify for them, you'll pay less money in interest charges with a subsidized loan, and you'll save money over the life of your loan. But not everyone will qualify for a subsidized loan.

Should I do subsidized or unsubsidized?

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.