What’s the Difference Between Subsidized and Unsubsidized Loans?
Subsidized and unsubsidized loans are flexible and cater to the needs of all students. Keep reading to learn what differentiates the two to help you make the best decision for your financial needs.

Federal student loans are essential in the life of a student because getting a college education is expensive. Otherwise referred to as Federal Stafford loans, these kinds of loans allow you to borrow money from the federal government, helping you pay for your tuition among other related costs such as living expenses. In this way, you’re able to focus on your studies and get the life and career you want. Federal student loans place you in a position where you are obligated to pay back the government for the loan when you are able to, as opposed to a bank. Subsidized and unsubsidized loans are just two types of federal student loans available. This guide will equip you with information to help you confidently choose the best option that fits your unique needs.
Subsidized vs Unsubsidized Student Loans
Subsidized | Unsubsidized | |
Who is eligible | Undergraduate | Undergraduate, graduate, or professional |
Current interest rate | 4.99% | Undergraduate: 4.99% Graduate/professional: 6.54% |
Loan limit per year (Independent students) | First year: $3,500 Second year: $4,500 Third year: $5,500 Fourth year onwards: $5,500 | First year: $6,000 Second year: $6,000 Third year: $7,000 Fourth year onwards: $7,000 |
Loan limit per year (Dependent students) | First year: $3,500 Second year: $4,500 Third year: $5,500 Fourth year onwards: $5,500 | First year: $2,000 Second year: $2,000 Third year: $2,000 Fourth year onwards: $2,000 |
Loan fee | 1.057% | 1.057% |
Repayment duration | – Repayment begins 6 months after you cease to be a student – Total repayment in 10–25yrs | – Repayment begins 6 months after you cease to be a student – Total repayment in 10–25yrs |
What are Subsidized Student Loans?
Subsidized loans are for undergraduate students and do not accrue interest while you are in school or during the grace period. You are required to demonstrate financial need to be eligible. Your loan limit is calculated by deducting your family contribution and other financial aid from your tuition and other college-related expenses.
Subsidized student loans are essential because while you are studying, even as a part-time student, the government is responsible for the interest on your loan. This means that when you start repaying the loan, you will pay thousands of dollars less than you would have if the loan had accrued interest.
What are Unsubsidized Student Loans?
Unsubsidized loans do not require you to prove financial need but the interest starts accruing as soon as the funds are transferred to your account. They are for undergraduate, graduate, or professional students. This type of loan is determined by deducting any financial aid that you might already be receiving, such as a scholarship, from the total cost of your degree.
Interest is charged until the loan is paid back in full, even during the grace period. Unsubsidized loans are necessary for certain students because they do not need a cosigner or credit history to get the loan successfully. The interest rate is also fixed.
Which Loan is Best for You?
Subsidized and unsubsidized loans are excellent options for paying for your college education, but it is essential to differentiate them and decide the best repayment option for you so that you don’t find yourself with overwhelming debt after you graduate.
Subsidized loans are reserved for undergraduates, both full- and part-time students, who demonstrate financial need. Only a small number of students successfully establish financial need. This loan does not accrue interest while you are in school, and you need to start paying it back as soon as your six-month grace period ends. Being aware of the federal student loan interest rate is useful, seeing as it is the rate that will apply for the duration of your loan unless told otherwise. Unsubsidized loans, on the other hand, are for undergraduates in addition to FAFSA independent students such as graduates and professional students. They do not require financial need but the interest starts accruing as soon as the funds are disbursed, and you will receive no relief from the government.
So which loan should you get? It depends on your expected family contribution and other financial aid you have received. Remember that there are no FAFSA income limits in order to get funding. For example, suppose the total amount of your expected family contribution combined with other financial aid is more than the total cost of your getting a college education (Cost of Attendance). In that case, you do not qualify for a need-based subsidized loan but are eligible for an unsubsidized loan.
How to Apply for Federal Student Loans
The application process for Federal Student Loans is simple. All you need to do is to apply for Free Application Federal Student Aid (FAFSA). The best part is that they are both free. Eligibility for federal student loans (the type of federal loan you qualify for) and whether or not you qualify for additional aid such as grants is determined by the FAFSA form.
The FAFSA application is also available online and is processed within five days, while mailed applications take up to 10 days. Take note of when FAFSA closes so that you’re submitting your application on time. Two key things to remember: There is no processing fee for both applications and you must submit a FAFSA form every academic year.
FAQs
Here are some of the most frequently asked questions.
Are unsubsidized loans worth it?
Unsubsidized loans may seem scary because of the accrued interest but they can be beneficial. You have a much lower fixed interest rate. If you are an independent student, you get a loan limit of up to $12,500 per year.
Do you pay back subsidized loans?
Yes. After you graduate, you have a six-month grace period, but after it expires, you have to start repaying the loan.
Can I pay off subsidized student loans early?
Yes. You can pay your subsidized loan as early as you wish with no penalties.
Final Thoughts
Federal loans make it possible for young people to afford a college education. Although subsidized and unsubsidized loans differ in terms and conditions, they both provide value that will minimize the stress you experience while in college. Loans are scary, but equipping yourself with the correct information will make getting a federal loan easier and more successful.