Facebook Email icon An envelope. It indicates the ability to send an email.
Email Twitter icon A stylized bird with an open mouth, tweeting.
Twitter LinkedIn icon
LinkedIn Link icon An image of a chain link. It symobilizes a website link url.
Copy Link lighning bolt icon An icon in the shape of a lightning bolt.
Save Article Icon A bookmarkAffiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate student loans to write unbiased product reviews.
If you need to borrow money to help pay for the cost of higher education at a college, trade, career, or technical school, Direct Subsidized loans and Direct Unsubsidized student loans are two of your best options.
Both are low-interest loans issued by the federal government and come with many federal benefits. With either type of federal student loan, you can fully defer payment until six months after you leave school and you can join an Income-Driven Repayment (IDR) plan or pursue various federal forgiveness programs.
But beyond these similarities, there are a few terms, conditions, and benefits that make them different.
Subsidized Loans
Unsubsidized Loans
Interest While in School
Paid by the government
Accrues, your responsibility
Eligibility
Based on financial need
Available to most students
Loan Limits
Annual and total limits
Annual and total limits
Interest Rates
May sometimes be slightly lower
Generally the same as subsidized
Choosing subsidized loans to pay for school can save you a lot of money in interest charges. But they can be harder to qualify for than unsubsidized loans and there are stricter limits on how much you can borrow and when.
The main difference between subsidized and unsubsidized loans comes down to who pays the interest that accrues while you're in school and during your grace period.
Keep in mind that neither type of loan will require you to make payments while you're in school. But with subsidized loans, the amount you borrowed will match your outstanding balance when repayment begins. With unsubsidized loans, on the other hand, your balance will also include the interest that accrued during your academic deferment.
Unsubsidized student loan borrowers can choose to make interest-only payments while they're still in school. But if you elect to not make any payments, your unpaid interest will be added to your principal balance when your regular repayment schedule begins.
The fact that the government pays the interest that accrues during deferment for unsubsidized loans makes them an incredibly attractive option. But they also have tougher borrower qualification standards:
Direct Subsidized loans
Direct Unsubsidized loans
If your school's financial aid department determines that you don't have a financial need, you won't be able to take out any subsidized loans. And if you're a graduate or professional student, you won't qualify for a subsidized loan, regardless of your financial situation.
Even if you do qualify for some subsidized loans, there's a strong chance that you won't be able to pay for your entire education with them.
The annual and lifetime borrowing limits on subsidized loans are more rigid than unsubsidized loans. Here's how much you can borrow per year and overall with both types of loans.
Subsidized: $3,500
Unsubsidized: $5,500
Subsidized: $3,500
Subsidized: $4,500
Subsidized: $4,500
Unsubsidized: $10,500
Subsidized: $5,500
Subsidized: $5,500
Subsidized: $23,00
Subsidized:
Unsubsidized
For subsidized loans taken out after July 1, 2013, there is a limit to how many academic periods you can receive funds. Your maximum eligibility period will be 150% of the published length of your program.
So, for example, if you're enrolled in a four-year bachelor's degree program, your maximum eligibility period for subsidized loans will be six years (4 x 1.5 = 6) For a two-year program, you could only receive subsidized loans for three years (2 x 1.5 = 3).
Unsubsidized loans do not have any maximum eligibility periods. You can continue to qualify for them as long you're enrolled at least part-time in a qualifying higher-education program.
For undergraduate students, subsidized and unsubsidized loans charge the same interest rate. Unsubsidized loans that are taken out by graduate or professional students, however, come with higher rates.
You can check the interest rates on your federal student loans by logging into StudentAid.gov or by contacting your loan servicer.
To apply for either type of Direct loan, you'll need to first submit your Free Application For Federal Student Aid (FAFSA).
Your school will analyze the information inside your FAFSA to decide how much federal aid you qualify for and if any of that aid can be in the form of subsidized loans.
Here are some quick tips on how to approach these two federal student loan types:
Compare Student Loan Rates
Today's student loan rates will vary by loan issuer, and even small differences in interest rates will add up over time. Compare rates from the best student loan refinance companies and best private student loans using a student loan marketplace before you apply.
How do I know if I qualify for subsidized loans? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Your Student Aid Report (SAR) after filing the FAFSA will specify if you qualify for subsidized loans and the amounts offered.
Can I have both subsidized and unsubsidized loans? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Yes, it is possible to have both subsidized and unsubsidized loans, and many students have a mix of both to cover their college costs.
What happens to the interest on unsubsidized loans after I graduate? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
After you graduate, the interest on unsubsidized loans is added to your principal balance, and future interest is calculated on the new, larger amount.
Can I pay off the interest on unsubsidized loans while in school? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Yes! If you can, it is highly recommended that you pay off any interest you have on subsidized loans to reduce your debt.
Both subsidized and unsubsidized loans can be crucial tools for financing your education. Prioritize subsidized loans, understand the implications of unsubsidized interest, and make informed borrowing decisions.
Clint ProctorClint Proctor is a freelance writer and founder of WalletWiseGuy.com , where he writes about how students and millennials can win with money. When he's away from his keyboard, he enjoys drinking coffee, traveling, obsessing over the Green Bay Packers, and spending time with his wife and two boys.
Read more Read less Top Offers From Our PartnersWestern Alliance Bank High-Yield Savings Premier Earn 5.31% APY on your entire account balance – more than 10 times the national average