Financial Aid

What's the Difference Between My Subsidized and Unsubsidized Student Loans?

The differences between Subsidized and Unsubsidized Loans include the timing of when interest starts accruing, the eligibility for awarding based on financial need, and the maximum amount permitted.
student using tablet to learn about subsidized and unsubsidized loans

In the financial aid packages you received recently, you likely noticed one or two federal student loans. The Federal Direct Student Loan, commonly referred to as the Stafford Loan (its former name) or the William D. Ford Loan (its official name), is awarded to almost every student who submits a FAFSA®. It's a loan funded by the federal government, and is included as a part of financial aid because of its competitive, fixed interest rate and favorable repayment options. The Direct Loan comes in two formats: Subsidized and Unsubsidized. What's the difference between the two? Read on.

What are Subsidized Loans?

  • Both Subsidized and Unsubsidized Loans accrue interest while you're in school, but the U.S. Department of Education will pay the interest on your Subsidized Loan until six months after you graduate or until you drop below half-time enrollment. That means the Subsidized Loan will ultimately cost you less over time than your Unsubsidized Loan.
  • Subsidized Loans are awarded based on financial need. Schools start with their Cost of Attendance (the total cost for one year at that school) and subtract your Student Aid Index (a calculated number based on your family's financial strength and ability to pay for college) to determine your financial need. They then do their best to fill in this need with need-based financial aid, including the Federal Direct Subsidized Loan.
  • You can receive, at max, $3,500 in a Subsidized Loan for freshman year. And the combination of your Subsidized and Unsubsidized Loans cannot exceed $5,500. 

What are Unsubsidized Loans?

  • You don't have to demonstrate any financial need to receive an Unsubsidized Loan.
  • You can receive, at max, $5,500 in an Unsubsidized Loan for freshman year. And the combination of your Subsidized and Unsubsidized Loans cannot exceed $5,500.
  • Though your Unsubsidized Loan will accrue interest while you're in school, you don't need to pay that interest until six months after you graduate or until you drop below half-time enrollment.

What Do Subsidized and Unsubsidized Loans Have in Common?

  • Both have the same fixed interest rate. That rate for the upcoming academic year's loans is determined at the end of May every year, and is set for the life of the loans. You can view the current interest rate here.
  • Both have an origination fee, which will be subtracted from the loan amount before the loan funds are placed in your student account. You can view the current origination fee here.
  • You'll need to complete entrance counseling and sign a Master Promissory Note before receiving your loans. Your college will provide instructions on how to complete these requirements.
  • You'll have several options on how to repay your loans once repayment begins.

Subsidized vs. Unsubsidized: How Are They Different? 

  • Subsidized Loans are only offered to students who demonstrate financial need, which means the student's Student Aid Index is less than the school's Cost of Attendance
  • Students don't accrue any interest on subsidized loans while they are enrolled at least half time in a degree-seeking program. Students always accrue interest on unsubsidized loans, even while they're in school.
  • Subsidized Loans also don't accrue interest during the grace period, the six-month period after a student leaves school. Unsubsidized Loans do accrue interest during that time.
  • Due to the lack of interest while in school, Subsidized Loans end up costing a student less than Unsubsidized Loans

You'll need to submit your FAFSA every year to receive your Federal Direct Student Loans, so make sure that's on your radar. And know that you don't need to borrow the full amount of student loans that you receive. You can request that your financial aid office reduce your loan amount anytime.

Learn more about federal student loans