The Difference Between Direct Subsidized Loans and Unsubsidized

Applying for the FAFSA matters. When applying for federal aid through FAFSA, you will find that there are two loans for students available through their program: direct subsidized loans and unsubsidized. Your family’s current financial situation and your needs determine which loan lenders offer and which you prefer.

A college student writing in a notebook.

Direct Subsidized Loans

 Subsidized, also know as direct subsidized, loans are solely based on financial need, which must be proven in your FAFSA and CSS application. To be eligible, you must also be a student at least half-time, be attending for a degree or a certificate, and be an undergraduate, graduate, or professional student.

Several factors go into determining your subsidized loan amount, including your school’s decision. Your year will also affect how much you can receive. After you complete freshman year, you may be eligible for more in your sophomore year and so on. However, for your senior year, if you are graduating in one semester, rather than two, you may not be eligible for the entire year’s loan amount. In this case, your credits will affect how much you can receive.

Students should also note that the government only grants direct subsidized loans for 150% of the expected program completion time. For example, a bachelor’s degree is normally four years and therefore, the government will consider your application for up to six. An associate’s degree is two years, so, in this case, the limit would be three.

Loan amounts under this category for undergraduates tend to be from $5,500 to $12,500 each year with a fixed interest rate of 3.76%. Graduates do not receive fixed interest rates under subsidized loans.

There is one major plus: there is no interest until you graduate as long as you remain in school for at least half-time. You will also have a six month grace period after leaving the school, graduation or not, and you are also free to request deferments.

Unsubsidized Loans

 Unlike subsidized loans, unsubsidized require no proof of financial need. However, the other eligibility requirements still stand: you must be attending at least half time, be in pursuit of a degree or certificate, and be an undergraduate, graduate, or professional student.

Your school will again make the decision to determine how much of this loan you should receive. The school takes into account other money you receive, such as any subsidized loans, as well as the cost of tuition.

Another major difference between subsidized and unsubsidized loans is interest. While the government will pay for your interest while in school under a subsidized loan, that is not the case for unsubsidized. Interest begins to accumulate immediately after you accept the amount. You may not want to pay interest during your school years, but any amount accrued adds to the principal loan amount upon leaving school and therefore accrue interest as well. Therefore, it is highly recommended that you pay the interest during college.

Loan amounts for unsubsidized tend to be between $5,500 and $12,500 and also have a fixed interest rate of 3.76% for undergraduates.

Although both choices can help you pay for your higher education costs, subsidized loans will allow you for more leeway for your money. However, it is a good idea to apply for both, which the FAFSA form will do for you. When the financial aid office makes a decision, you can see if you are eligible for any subsidized or unsubsidized loans. It’s recommended that you weigh the pros and cons of each before accepting the loan terms and talk to a financial aid representative for more assistance.

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Lender Rates (APR) Eligibility
Citizens logo.
5.98%-16.48%* Variable
4.39%-15.46%* Fixed
Undergraduate and Graduate
Sallie Mae logo.
5.37% - 15.70% Variable
4.15% - 15.49% Fixed
Undergraduate and Graduate
Credibe company logo.
5.37% - 16.85% Variable
4.04% - 16.69% Fixed
Undergraduate and Graduate
Lendkey company logo.
5.98% - 13.74% Variable
3.99% - 12.61% Fixed
Undergraduate and Graduate
Ascent company logo.
5.99% - 15.85% Variable
3.79% - 15.41% Fixed
Undergraduate and Graduate
6.54% - 11.08% Variable
3.70% - 8.24% Fixed
Undergraduate and Graduate
Earnest company logo.
5.62% - 16.85% Variable
4.17% - 16.49% Fixed
Undergraduate and Graduate
6.00% - 14.22% Variable
4.50% - 14.22% Fixed
Undergraduate and Graduate
College Raptor is not a loan lender and does not assume responsibility for suggesting a loan to a user who may not be eligible for it. Rates, terms, conditions, eligibility, approval, and other considerations are the decisions of the lenders and may vary depending on which lender or marketplace the user selects. We urge users to carefully consider and review all loan options and terms before committing to taking out a loan.

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