Your guide to unsubsidized loans

Wondering if a loan could help you pay for college? With so many student loan options, it’s hard to know where to start. Most student loans are either federal or private. And federal student loans typically fall into one of two categories: subsidized and unsubsidized. 

It may be easier to qualify for an unsubsidized loan than a subsidized one, but interest accrues from the moment an unsubsidized loan is disbursed. So, what exactly does this mean for borrowers? And how do you know if this option could be right for you?  

Read on to learn about unsubsidized loans and how they work. 

Key takeaways

  • The Department of Education (DOE) offers subsidized and unsubsidized loans through its Direct Loan Program.
  • Unsubsidized loan borrowers don’t have to prove financial need, but subsidized loans are need based. 
  • Unsubsidized loans accrue interest while the borrower is in school, after they graduate and during periods of deferment. 
  • Students must complete the Free Application for Federal Student Aid (FAFSA®) to apply for unsubsidized loans.

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What is an unsubsidized loans?

A Direct Unsubsidized Loan is a federal student loan that’s available to both undergraduate and graduate students. Borrowers may qualify for this type of loan regardless of financial need. 

An unsubsidized loan starts accruing interest as soon as it’s disbursed. Borrowers aren’t required to pay the interest while they’re in school or during grace periods. But unpaid interest will be added to the loan’s principal balance, and this can increase the total borrowing costs.

Students don’t have to prove financial need for unsubsidized loans, but they’re still required to meet basic eligibility requirements. These requirements apply to all types of federal student aid and include being a U.S. citizen or eligible noncitizen, maintaining at least part-time enrollment and more. You can read the DOE’s full list of requirements for more information. 

Unsubsidized loans have yearly and total, sometimes called aggregate, borrowing limits. These limits vary based on a student’s year in school and their dependency status, which refers to whether a student’s family financially supports them. 

A student’s school determines how much they can borrow, based on the cost of attendance and the student’s FAFSA information. So the actual amount a student is awarded could be less than the borrowing limit.

Subsidized vs. unsubsidized loans: Are unsubsidized loans better? 

The right loan choice for one student may not be right for another. When you compare subsidized and unsubsidized loans, there are some key things to consider. Understanding eligibility requirements, borrowing limits and the way interest applies to each loan could help you make the best borrowing decisions for your situation. 

Subsidized loans are only awarded to undergraduate students with financial need. The maximum subsidized loan amount a student can borrow over the course of their education is $23,000. These loans don’t accrue interest while students are enrolled in school at least part time or during deferment periods. That’s why they often have lower borrowing costs than unsubsidized loans.

Unsubsidized loans aren’t based on financial need and they’re available to undergraduate and graduate students. They also have higher loan limits for borrowers, which vary based on a borrower’s year in school and dependency status. 

Here’s a comparison of borrowing limits for subsidized and unsubsidized loans:


Student status

Subsidized loan total limit

Unsubsidized loan total limit

Dependent undergraduate



Independent undergraduate



Graduate student

Not Eligible



It’s important to note that the $138,500 unsubsidized loan limit for graduate students includes any federal loan funds borrowed during undergraduate studies. In addition to having different loan limits, undergraduates receive different interest rates than graduate borrowers. 

What are the interest rates for subsidized and unsubsidized loans?

Federal student loan interest rates aren’t determined by a borrower’s credit scores. They’re set by Congress and determined by federal law. The interest rate can change from one year to the next, but once a loan is disbursed the rate remains fixed. 

Undergraduate federal student loan borrowers will receive a 4.99% interest rate for both subsidized and unsubsidized loans. Graduate students will have a 6.54% interest rate for their unsubsidized loans. These rates apply to students whose first loan is disbursed between July 1, 2022, and July 1, 2024. 

Borrowers will also pay a loan origination fee. The current 1.057% fee applies to Direct Subsidized and Direct Unsubsidized loans that are initially disbursed before October 1, 2023. 

Pros and cons of unsubsidized and subsidized student loans

There are many different types of student loans. When you compare your borrowing options, it’s helpful to think of the pros and cons of each one. 

Federal student loans typically have lower interest rates and better terms than private ones. So experts generally recommend students explore their federal student loan options first. 

Most federal loans are either subsidized or unsubsidized. Each of these loans has its own eligibility requirements, loan limits and borrowing costs. 

If you’re thinking about using a federal student loan, here are some things you’ll probably want to consider:

Unsubsidized loans




Not based on financial need.

Interest accrues from the moment the loan is disbursed.

Available to undergraduates and graduate students.

Borrowers are responsible for paying all interest.

Higher borrowing limits.

Interest will capitalize if payments aren’t made while students are enrolled in school.

May be eligible for protections like COVID-19 forbearance and repayment plans.

Often has higher borrowing costs.


Subsidized loans




The government pays interest while a borrower is in school and during grace periods.

Borrowers must demonstrate financial need.

May be eligible for protections like COVID-19 forbearance and repayment plans.

Only offered to qualifying undergraduate students.

Typically have lower borrowing costs than both unsubsidized and private loans.

Not available for graduate students or those who can’t prove financial need.


FAQs: Unsubsidized and subsidized federal loans

If you’re looking for ways to pay for school, it’s important to research your options and ask questions. With so many financing choices, though, it’s easy to get confused. Hopefully these answers to commonly asked student loan questions can help. 

How to get federal student loans

You’ll need to fill out the FAFSA if you want to apply for a student loan or any other type of federal student aid. The DOE has basic requirements to qualify. Students must:

  • Be a U.S. citizen or eligible noncitizen.
  • Be enrolled at least part time. 
  • Have no federal loans in default and not owe money to previous aid programs.
  • Make satisfactory academic progress, such as meeting grades and conduct standards.

Once the FAFSA is complete, a student’s school will determine how much they can borrow. Cost of attendance, expected family contribution and other aid sources can factor into this decision. 

Keep in mind that a school must participate in the William D. Ford Federal Direct Loan Program for a student to receive a federal student loan. You can contact your school’s financial aid department to see if they participate in this program and review other aid options.

Am I eligible for a subsidized loan?

Several factors can determine eligibility for a Direct Subsidized Loan. First, students must meet basic federal aid requirements. And because subsidized loans are need based, students have to meet additional financial requirements. 

Your school’s financial aid office will use your FAFSA information to see if you meet the need-based requirement. Once your school determines which types of aid you can receive, you’ll typically receive a financial aid package. If you’re eligible for a subsidized loan, it’ll likely be included in this package.

Who is eligible for an unsubsidized loan?

Both undergraduate and graduate students are eligible for unsubsidized loans. These loans aren’t based on financial need. But your FAFSA information will be used to determine how much you can borrow. 

How much can I borrow with an unsubsidized loan?

Your dependency status and year in school will determine the unsubsidized loan amount you can borrow. Independent students can borrow more funds than can dependent students. And graduate students could be eligible for up to $20,500 per year.

How to repay federal student loans

According to the DOE, student loan repayment begins once a borrower graduates, drops below half-time enrollment or leaves school. But Direct Subsidized and Direct Unsubsidized loans have a six-month grace period before repayment starts. 

When a federal student loan enters repayment, the loan servicer will automatically place the borrower on the standard repayment plan and give them a loan payment schedule. They should also provide the date of first payment, number of payments and payment amount. Keep in mind that you can request a different repayment plan at any time.

The DOE offers several repayment plans, such as Income-Based Repayment and Pay As You Earn. These plans can make it easier to pay back student loans. For example, the Revised Pay As You Earn repayment plan adjusts monthly payments to be 10% of a borrower’s discretionary income. Some borrowers may even qualify for loan forgiveness programs.

Unsubsidized loans in a nutshell

Unsubsidized loans could help students pay for college costs that other types of aid, like subsidized loans, won’t cover. And if you’re a graduate student or can’t prove financial need, unsubsidized loans may be your only federal option. 

An unsubsidized loan accrues interest from the moment it’s disbursed, so it can have higher borrowing costs than a subsidized loan. But unsubsidized loans can still be a good option because these loans typically have lower borrowing costs and better terms than private loans. 

Looking for more financial tips for students? There are strategies that can help with managing your money in college. You could also learn how to build credit when you use a credit card—like a student credit card from Capital One—responsibly.

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