There are two main types of federal student loans granted based on the student’s financial need: subsidized loans and unsubsidized loans. With a subsidized loan, the main benefit is that the federal government pays some of the interest on your loan while you’re in school, during periods of deferment, and during the grace period. Unsubsidized loans accrue interest until you enter the repayment period. Unsubsidized loans can cost more in the long run due to interest accrual, so when possible, you should always max out subsidized loans before you take out an unsubsidized loan.

How Subsidized and Unsubsidized Compare

If you’re overwhelmed trying to understand financial aid, loans, and grants, you’re not alone. To understand how subsidized loans compare to unsubsidized loans, let’s take a deeper look at what these loans involve, eligibility, loan limits, and pros and cons.


Direct subsidized loans are available for undergraduate students with financial need. The U.S. Department of Education subsidizes these loans by paying interest on the loan while you’re enrolled in the program, during deferment periods, and for the six-month grace period after you graduate.

Direct unsubsidized loans start accruing interest as soon as you take out the loan. You may choose not to pay the interest while you’re enrolled in school and during the grace period, but the unpaid interest will be added to your principal. This can increase your total loan balance and can make the loan more expensive.


To qualify for either of these loans, you’ll need to meet a few common eligibility requirements, as listed below:

  • At least half-time enrollment in school
  • Be a U.S. citizen, national, or eligible non-citizen
  • Satisfactory academic progress
  • No default on previous or current federal loans

If you’re applying for a subsidized loan, you’ll have to meet a few additional requirements in addition to the ones listed above:

  • Demonstrate financial need
  • Be an undergraduate student

Who Can Get Subsidized and Unsubsidized Loans?

There are key differences between who can qualify for subsidized vs. unsubsidized loans. Subsidized loans are only available to undergraduate students with financial need. Unsubsidized loans are available to all students, including undergraduate, professional degree, and graduate students. You don’t need to demonstrate financial need to get an unsubsidized loan.

How Much Can You Borrow with Each?

Ultimately, your school will decide the loan amount you can borrow based on the cost of attendance and whether you are a dependent or independent student. There are also annual loan limits in place. For subsidized loans, the maximum amount you can borrow for an academic year is $5,500, while the aggregate loan limit is capped at $23,000.

Dependent undergraduate students can get a maximum of $31,000 combined as subsidized and unsubsidized student loans. Independent undergraduate students can get a maximum of $57,500 total. Professional students or graduate students can get a maximum of $138,500 through unsubsidized loans.  


Both types of loans offer distinct advantages, and either one may be right for you based on the program you plan to enroll in and the amount you need to borrow. Let’s look at the benefits of subsidized vs. unsubsidized loans side by side.

Subsidized LoansUnsubsidized Loans
The federal government pays the interest on the loan while you’re in school, during the grace period, and during the deferment period.Accessible to more borrowers because there’s no need to demonstrate financial need. 
You’ll have a six-month grace period after graduation, during which the government will pay interest on the loan.Students can borrow more because of the larger borrowing limits. 
Interest rates are lower compared to unsubsidized loans. It is easier to qualify for unsubsidized loans.
You’ll be able to temporarily defer payments or apply for repayment plans if you’re having trouble keeping up with payments.


You should also be aware of the disadvantages of both types of loans so you can make an informed decision about which one may be right for you.

Subsidized LoansUnsubsidized Loans
Lending limits are lower, so it may not cover all your costs. The interest rate is higher than subsidized loans. 
You’ll only be eligible if you can demonstrate financial need. Interest starts accruing as soon as you take out the loan.
Subsidized loans are only available to undergraduate students.  

Which Type of Loan Is Better?

When comparing subsidized vs. unsubsidized loans, one of the most important determining factors is interest accrual. Subsidized loans are the best choice for eligible borrowers because the government pays the interest on the loans while you’re in school, so you’ll pay less overall. If you’re an undergraduate student and can successfully demonstrate financial need, subsidized loans are the right choice.

If you’re not an undergraduate student and do not have financial need, unsubsidized loans are the only option available. The interest rates for both types of loans are also different. For undergraduate borrowers, the interest rate on subsidized and unsubsidized loans is 5.50%. For graduate and professional borrowers, the interest rate for direct unsubsidized loans is 7.05%. These are fixed interest rates that stay the same for the entire life of the loan.

Teresa Dodson, debt expert and founder of Greenbacks Consulting, offers this advice: “Do your research to determine what is the best type of loan and what you best qualify for. Federal loans are at a low interest and can be very helpful,” Dodson says. 

Repayment Plans

For subsidized and unsubsidized loans, you’ll have several different student loan repayment options to choose from. Your loan servicer will automatically enroll you in a Standard Repayment Plan unless you ask for a different option. Here are a few more options that you can explore.

  • Graduate Repayment Plan: The lender will start your payments off lower and then raise them slowly.
  • Standard Repayment Plan: Similar to a personal loan, you’ll have a fixed monthly payment for a loan term of at least ten years to repay your student loan debt.
  • Income-Driven Repayment Plan: Your monthly payment will be based on your family size and income. There are four different types of IDR plans that you can choose from.   

How To Apply for Subsidized or Unsubsidized Loans

The application process for subsidized and unsubsidized loans is the same. Here’s how to apply for either type of loan:

  1. Start by determining your eligibility for the federal direct loan program. See how much you need to borrow after the expected family contribution.
  2. Fill out the Free Application for Federal Student Aid (FAFSA) and submit it.
  3. The school will review your information and send you a financial aid award letter. This letter will specify whether you qualified for a subsidized student loan or unsubsidized.
  4. Contact the financial aid office to confirm that you accept the loan. You’ll have to sign a master promissory note to finalize the loan.

The Bottom Line on Subsidized Vs. Unsubsidized Loans

There are two main types of direct loans- subsidized and unsubsidized. To qualify for subsidized loans, you must be an undergraduate student and demonstrate financial need. If you don’t meet those two qualification criteria, you may still be able to get an unsubsidized federal student loan.

If you qualify for neither, private student loans are another option. Regardless of the loan type, you’ll still have to repay the loan along with the interest, but subsidized loans turn out to be cheaper since the government pays some of the interest on the loan. If you have credit card debt and loans from private lenders and are unsure if you’ll be able to afford payments, speak to a personal finance professional to explore your options before you borrow.