Subsidized vs. Unsubsidized Student Loans

Direct subsidized and unsubsidized loans are different types of federal student loans offered to eligible students by the U.S. Department of Education. They are available to help students pay for the cost of college, community college or other types of higher education.

In this article, we’ll discuss the main differences between subsidized and unsubsidized loans including who is eligible, how much you can borrow, and how the interest works.

What is a subsidized student loan?

A direct subsidized student loan is a type of loan that is available to undergraduate students with specific financial needs. This need is determined by your attendance costs minus your expected family contribution and any other financial aid, such as scholarships or grants.

Subsidized loans don’t accrue interest while the borrower is still enrolled in school. Instead, the U.S. Department of Education pays the interest if you are enrolled at least half-time, in a period of deferment, or in the first six months after leaving school.^[1]

In the 2022-23 academic year, undergraduate students in the U.S. borrowed over $15 billion in subsidized student loans.^[2]

What is an unsubsidized student loan?

A direct unsubsidized student loan is a type of loan that is available for undergraduate and graduate students and is not based on financial need. The amount you can borrow is determined by your school and is based on your tuition costs and any other financial aid you may receive, such as scholarships or grants.

With an unsubsidized loan, the borrower is responsible for paying all interest accrued on the loan from the time of the first disbursement.^[1]

The key differences between subsidized and unsubsidized student loans

Let’s take a look at some of the key similarities and differences between subsidized and unsubsidized student loans.

Source ^[1]

Eligibility requirements for student loans

If you’re applying for a subsidized or unsubsidized student loan, the eligibility requirements will vary.

However, all students who apply for either type of loan will need to meet the following eligibility requirements:

• At least half-time enrollment in a school that participates in the Federal Direct Loan Program.
• Be a U.S. citizen or eligible non-citizen.
• Have a valid Social Security Number (SSN) - students from the Republic of the Marshall Islands, Federated States of Micronesia, or the Republic of Palau are exempt from this.
• Have a high school diploma or equivalent.
• Show you’re qualified to obtain a college or career school education.
• Be enrolled or accepted for enrollment as a regular student in an eligible degree or certificate program.
• Maintain satisfactory academic progress in college or career school.
• Give consent for your federal tax information to be transferred into your FAFSA form.
• Sign a certification stating you are not in default on any other federal student loan and do not owe money on a federal student grant.
• Sign a certification stating you will only use federal student aid for educational purposes.
  ^[3]

Eligibility for subsidized student loans

To be eligible for a subsidized student loan, in addition to the above requirements, you must:

• Be enrolled at least half-time in a school that participates in the Direct Loan Program
• Be an undergraduate degree student
• Demonstrate financial need

Eligibility for unsubsidized student loans

To be eligible for an unsubsidized student loan, in addition to the above requirements, you must:

• Be enrolled at least half-time in a school that participates in the Direct Loan Program
• Be an undergraduate, graduate, or professional degree student
  ^[1]

What is financial need for student loans?

Financial need refers to the difference between the cost of attending college and your ability to pay this cost. It is formally calculated as the difference between a college’s cost of attendance (COA) and the Student Aid Index (SAI). The SAI replaced the Expected Family Contribution (EFC) on the Free Application for Federal Student Aid (FAFSA) for the 2024-2025 school year.^{[4] [5]}

Your SAI is calculated using the information you enter on the FAFSA about you and your family’s financial resources. Financial aid officers will take your SAI and any other financial assistance you receive (like grants or scholarships) and subtract it from your cost of attendance (including tuition, fees, room and board). Your financial aid eligibility is determined using the following calculation:

Financial need = COA - SAI - EFA

COA is the total cost of attendance, and EFA is the estimated financial assistance from other sources like scholarships.

For example, if your cost of attendance is $30,000, your SAI is $10,000 and your EFA is $10,000, your financial need would be $10,000.

A lower SAI demonstrates a higher level of financial need, making you more likely to qualify for financial assistance in the form of the Pell Grant or a subsidized loan.^[6]

Borrowing limits

The amount you can borrow also varies between subsidized and unsubsidized loans, take a look at the tables below to learn more about these borrowing limits.

Borrowing limits for dependent undergraduate students

The borrowing limits below are for dependent students, meaning students who are financially dependent on their parents or another person. This typically applies to students under 24 who are not married and do not have any dependents of their own. A dependent student is a student who does not meet any of the criteria for an independent student.

If you are a dependent student, your parents’ income and financial information will be included if you apply for financial aid to help determine how much aid you are eligible for.^[7]

Source ^[1] Accurate as of February 2025.

Borrowing limits for independent undergraduate students

For independent students, meaning those who are not financially dependent on their parents, the loan borrowing limits are shown below. Independent students must meet one or more of the following criteria:

• At least 24 years old
• Married
• A graduate or professional student
• A veteran
• A member of the armed forces
• An orphan
• A ward of the court
• Someone with legal dependents other than a spouse
• An emancipated minor
• Someone who is homeless or at risk of becoming homeless
  ^[7]

While the maximum subsidized limits are the same for dependent and independent students, the total (subsidized and unsubsidized) loan limits are higher for independent students.

Source ^[1]

Repaying subsidized and unsubsidized loans

For both subsidized and unsubsidized loans, you will have a six-month grace period before you are required to begin repayments. This grace period starts when you graduate, leave school, or drop below half-time enrollment. During the grace period, your loan provider will notify you of the first repayment due date; typically repayments will be made monthly.

There are a number of different repayment plans available to meet individual needs. Your loan provider will inform you about your options and how to select a plan that suits your financial needs. With most student loans, you will have between 10 and 25 years to make repayments, depending on the repayment plan you choose.

If you are unable to make your scheduled loan payments, you should contact your loan servicer immediately. Your loan provider can help you make changes to your repayment plan to help keep your loan in good standing. This might include reducing your monthly payment or applying for a deferment or forbearance that allows you to stop or reduce your loan payments temporarily.
Source ^[1]

Student loan forgiveness

In some circumstances, you may be able to have your federal student loans forgiven, discharged, or canceled, meaning you won’t have to pay back some or all of the loan. Whether you can apply for loan forgiveness will depend on your situation.

One way to qualify for loan forgiveness is through Public Service Loan Forgiveness (PSLF). This program forgives the remaining balance on your Direct Loans once you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.

Some of the ways you can qualify for PSLF include:

• Being a teacher
• Being a government employee
• Working for a nonprofit organization
• Being a nurse, doctor, or other medical professional
  ^[8]

Other ways to apply for loan forgiveness that are not related to public service include:

• Having a disability
• Repaying your loans under an Income-Driven Repayment (IDR) plan
• If your school closed while you were enrolled or seen after your withdraw
• If your school misled you or engaged in misconduct in violation of certain laws
• If you have declared bankruptcy, only in specific circumstances

Visit StudentAid.gov for a full list of circumstances that may qualify you for student loan forgiveness.^[9]

Bottom line

Subsidized and unsubsidized student loans both offer students help with paying for a college education and managing money in college, and both types of loans need to be paid back with interest. The main difference between the two is that subsidized loans are available to those who demonstrate financial need, and the government covers the interest costs while you are still enrolled in school.

Be sure to understand all of your options relating to loans and other types of financial assistance before you apply. You must complete the Free Application for Federal Student Aid (FAFSA) in order to be eligible for federal student aid including subsidized or unsubsidized loans, federal grants, or work-study funds. Completing the FAFSA form is free and allows you to access the largest source of student aid to help you pay for college or career school.

Many colleges and states will use the information on your FAFSA to decide if you are eligible for school or state aid. Private aid providers could also use the information on your FAFSA to decide if you qualify for other types of aid.

Visit the Federal Student Aid website for more information on all types of student loans and who is eligible.

Sources

1. Federal Student Aid, “Subsidized and Unsubsidized Loans” https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized
2. College Board, “Trends in College Pricing and Student Aid 2023” https://research.collegeboard.org/media/pdf/Trends%20Report%202023%20Updated.pdf
3. Federal Student Aid, “Eligibility Requirements” https://studentaid.gov/understand-aid/eligibility/requirements
4. Saving for College, “What is the Student Aid Index” https://www.savingforcollege.com/article/what-is-the-student-aid-index-sai
5. Investopedia, “Student Aid Index (SAI)” https://www.investopedia.com/terms/e/expected-family-contribution.asp
6. Federal Student Aid, “What is the Student Aid Index?” https://studentaid.gov/help/sai
7. Federal Student Aid, “Dependency Status” https://studentaid.gov/apply-for-aid/fafsa/filling-out/dependency
8. Federal Student Aid, “Public Service Loan Forgiveness” https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
9. Federal Student Aid, “Student Loan Forgiveness” https://studentaid.gov/manage-loans/forgiveness-cancellation
10. Federal Student Aid, “What is the FAFSA Form and Why Should I Fill it Out?” https://studentaid.gov/help/fafsa

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