What’s the Difference Between Subsidized and Unsubsidized Student Loans?
Summary
Subsidized and unsubsidized loans are federal student loans that help students pay for higher education. Learn the differences and qualifications before you apply.
In this article:
If you’re just beginning your higher education journey, you may not be familiar with student loan features and repayment terms. It’s important to understand your borrowing options so you can pay for your education in a way that feels manageable for your long-term budget.
You don’t need to be a financial aid expert to understand how federal student loans work. Let’s look at the two common types — subsidized and unsubsidized student loans.
What are subsidized loans?
Subsidized student loans are federal student loans available to undergraduate students who need help paying for an associate or bachelor’s degree program.
If you’re approved for a subsidized loan, the U.S. Department of Education typically pays the interest for you during the following timeframes:1
- While you’re attending school at least half-time
- During the six-month grace period after you graduate, leave school or fall below half-time
- During any federally approved temporary deferments
Since interest won’t accrue during these times, the loan balance won’t increase either, which could save you money in the long run. In most cases, you’ll be required to start making regular payments on your loans after six months if you drop below half-time enrollment, leave school or graduate.
Who qualifies?
To qualify for a subsidized loan, you must:2
- Attend a school that participates in the Direct Loan Program — a federal student loan program that allows eligible students and parents of students to borrow directly from the U.S. Department of Education.3
- Be enrolled at least half-time in an undergraduate program that will lead to a degree or certificate awarded by the school
- Complete the Free Application for Federal Student Aid (FAFSA), which is a general application that allows you to apply for several types of federal student aid at once
- Demonstrate financial need. Your financial need is determined by the difference between the cost of attendance (COA) and your Student Aid Index (SAI), which is calculated by subtracting your annual income — including your parents’ if you’re considered a dependent or your spouse’s if you’re married — from the minimum cost of your yearly living expenses.4
How much can students borrow?
If you’re approved for a subsidized student loan, your school will determine how much you can borrow based on how much tuition typically costs and whether you qualify for other forms of financial aid. There are limits to how much you can receive each academic year (annual loan limit) and the full amount you can borrow to complete an undergraduate or graduate degree (aggregate loan limit).5
What are unsubsidized loans?
Unsubsidized loans are federal student loans available to undergraduate, graduate and professional students, regardless of financial need. Unlike subsidized loans, unsubsidized loans begin accruing interest as soon as you receive the funds. The federal government will not pay the interest for your unsubsidized loan while you’re in school or during the six-month grace period.6
Students who have unsubsidized loans are typically required to begin making payments six months after graduation or if their enrollment falls below half-time.
Who qualifies?
To qualify for an unsubsidized loan, you must:7
- Attend a school that participates in the Direct Loan Program and accepts federal student loans
- Be enrolled at least half-time in an undergraduate or graduate or professional degree program
- Complete the FAFSA
- Not be in default on any existing or previous federal student loans
While you still need to fill out the FAFSA to be eligible for an unsubsidized loan, you don’t need to demonstrate financial need to qualify.8
How much can students borrow?
If you qualify for an unsubsidized student loan, your school will determine the total amount of money you can borrow based on whether you’re receiving additional financial aid and the cost of attendance. Unsubsidized loans typically offer higher borrowing amounts compared to subsidized loans.9
What are the key differences between subsidized and unsubsidized loans?
Subsidized and unsubsidized loans are both federal student loans and generally have lower interest rates than private student loans offered by banks, credit unions and online lenders, 10 but they have some important differences to keep in mind.
Subsidized loans are only available to undergraduate students with financial need. Unsubsidized loans are available to undergraduate, graduate or professional students regardless of financial need.
The federal government usually pays interest for subsidized loans during certain periods. With unsubsidized loans, interest begins to accrue immediately after funds are distributed.
| Feature | Subsidized Loans | Unsubsidized Loans |
|---|---|---|
| Interest Payment | The federal government typically pays the interest: • While you attend school at least half-time • During the grace period after you graduate or leave school • When payments are temporarily deferred |
You pay the interest, which begins to accrue once funds are distributed |
| Eligibility | Students with financial need | Eligibility Students with financial need No financial need requirement |
| Borrower Type | Undergraduates only | People in undergraduate, graduate or professional degree programs |
| Borrowing Limit | Determined by your school, may be lower than unsubsidized loans and most private loans | Determined by your school, may be higher than subsidized loans, but lower than most private loans |
How to apply for a federal student loan
The process to apply for federal subsidized and unsubsidized student loans is the same:
- Complete the FAFSA each academic year to determine if you’re eligible
- Review your financial aid award letter from your school to see what grants or loans you qualify for
- Follow your school’s instructions to accept the loans you need
Which federal student loan is right for you?
The federal government uses your FAFSA to decide whether you may be eligible for certain grants, scholarships or student loans. In some cases, you may qualify for grants, scholarships and both subsidized and unsubsidized loans.
If scholarships and grants aren’t enough to pay for school, it may make sense to apply for a subsidized or unsubsidized student loan.
It might be a good idea to start with subsidized student loans, because you don’t have to worry about the loans accruing interest while you’re in school. However, if you don’t qualify for a subsidized loan or need more money to pay for school, an unsubsidized loan could help you bridge the gap.
If federal student loans aren’t enough to cover your full cost of attendance, you could consider applying for a private student loan. In this case, make sure you compare your options carefully. Private student loans tend to have higher interest rates than federal loans and may not offer the same repayment and deferment options.
Ultimately, you have the final say on which financial aid offers you will accept. Be sure to read the details carefully before making your decision.
A smarter way to pay for school
Repaying your loan may feel far off, but it’s worth thinking through now. That might mean sitting down with your parents if you’re a dependent student or, if you’re on your own, reviewing your budget — and maybe even looping in your partner. No matter which paths you choose, taking time to explore your options now could help save you stress — and money — after you graduate.
Sources:
1, 2, 5, 6, 7, 8, 9 https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized
3 https://studentaid.gov/help-center/answers/article/federal-direct-loan-program
4 https://studentaid.gov/help-center/answers/article/how-sai-calculated
10 https://studentaid.gov/understand-aid/types/loans/federal-vs-private
This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.
