All You Need to Know About Direct Subsidized and Unsubsidized Student Loan

There are times when you struggle to pay the cost of higher education at a college, trade, career, or technical school, and you start thinking about borrowing money. In such an event, taking a Direct Subsidized or Direct Unsubsidized Student Loan is your most appropriate choice.    

What are they? These two are low-rate federal loans that provide many federal benefits. Taking any of the loans enables any student to have six months after graduating in reserve to pay for it. Besides, you can either join an Income-Driven Repayment (IDR) plan or take part in any other federal student loan forgiveness programs.

What is the main difference?

Selecting subsidized loans as a tool to pay for education can save you a lot of money during the interest payment. However, a subsidized loan is more difficult to obtain in comparison with unsubsidized, as there is a restrictive limitation on the time and sum of borrowing.

Who takes responsibility for the interest payment?

The main distinctive feature of subsidized and unsubsidized loans rests on who is responsible for paying the interest that accrues during your education or grace period.

With subsidized loans, the Department of Education is responsible for paying the interest on your loan during your education, at least part-time, grace period, and any deferment period. Conversely, with unsubsidized loans, you are the one who is in charge of paying the interest accrued on your loan during all periods.

Take into account that neither of the loans obliges you to pay when you are studying. With a subsidized loan, your lending amount will match the loan balance at the beginning of your repayment. However, with an unsubsidized loan, your loan balance will include the interest, accrued during the academic deferment. 

Students who have taken out an unsubsidized loan can select to pay off only interests while studying. However, in case you decide to put off any payments until the regular repayment schedule, you have to know that when it begins, your outstanding balance will include the unpaid interest.

Are there any requirements for the loan applicant?

Although it seems very appealing that the government is paying your interest accrued during the deferment for an unsubsidized loan, you have to be aware of some demanding standards regarding the loan applicant.

The Direct Subsidized loan aims for students who can prove their financial need. They can receive a sum of money that will not outrange their financial need. It is only obtainable for undergraduate students.

The Direct Unsubsidized loan borrower does not need to prove his or her financial need. The loan is accessible to both undergraduate and graduate students.

If the financial aid department of your educational institution cannot confirm your financial need, you are not able to take off the subsidized loan. Besides, a graduate or professional student is not eligible to take off a subsidized loan, despite his or her financial situation.

What are the loan limits for federal student loans?

Even if you are eligible to take some subsidized loans, it still does not mean that you will be able to cover the cost of the entire education with it.

The annual and lifetime loan limits on subsidized loans are more restricted than on unsubsidized. Below you can see the calculation of the loan amount you can borrow annually and in total on any of the loan types.

YearDependent StudentsIndependent Students
First-Year Undergraduate StudentsSubsidized: $3,500 Unsubsidized: $5,500Subsidized: $3,500 Unsubsidized: $9,500
Second-Year Undergraduate StudentsSubsidized: $4,500 Unsubsidized: $6,500Subsidized: $4,500 Unsubsidized: $10,500
Third-Year and Beyond  Undergraduate StudentsSubsidized: $5,500 Unsubsidized: $7,500Subsidized: $5,500 Unsubsidized: $12,500
Graduate or Professional StudentsN/AUnsubsidized: $20,500
Aggregate Loan LimitSubsidized: $23,00 Unsubsidized: $31,000Subsidized: Undergraduate Students: $23,000Graduate or Professional Students: $65,000 Unsubsidized Undergraduate Students: $57,500 Graduate or Professional Students: $138,500

Is there a time limit?

There is a limit on a number of academic periods you can receive funds for subsidized loans taken after July 1, 2013. It comes to you at the max 150% of the declared length of your program.

To illustrate, if your bachelor’s degree program is four-year-long, your maximum eligibility period for subsidized loans is six years (4 x 1.5 = 6).

If your program is two-year-long, you are eligible to receive a loan for three years (2 x 1.5 = 3).

There are no restricted maximum eligibility periods for unsubsidized loans. You are eligible for them as long as you are enlisted for the higher-education program at least part-time.

Interest rates and fees

The interest rate for subsidized and unsubsidized loans for undergraduate students is identical. However, the interest rate for the graduate or professional students who take the unsubsidized loan is higher.

The Department of Education has recently announced the new interest rates for Direct Stafford loans, taken before and after July 1, 2020.

No doubt, the news of the record-breaking lowering of the rate of interest will be delightful for the borrowers:

  • Direct Subsidized Loans and Direct Unsubsidized Loans for Undergraduate Students: 2.75%
  • Direct Unsubsidized Loans for Graduate and Professional Students: 4.30%

Note that if you have already taken out a loan, the interest rate will be different. For instance, the interest rate for the Direct Stafford Loan taken after July 1, 2019, or before July 1, 2020, is equal to 4, 53% for undergraduate students and 6, 08% for graduates.

Log in to or contact your loan servicer to find out more about the interest rates on your federal student loan.

Besides, due to the financial issues that borrowers face because of the COVID-19 pandemic, the Department of Education has temporarily delayed all federal student loan payments and interest accrual on them until September 30, 2020.

How can I apply for a federal student loan?

If you are ready to apply for either type of direct loan, the first thing to do is to submit your Free Application for Federal Student Aid (FAFSA).

Your educational institution will process the information in your FAFSA to estimate the volume of federal aid you are eligible for and decide do you require for a subsidized loan as your federal aid.


Taking out a subsidized loan is the best option for students who are eligible for it, as it offers low-interest conditions to cover the cost of higher education. However, even if you have already reached the limits of your subsidized loan or your financial position does not enable you to take it; you have to remember about unsubsidized loans. They offer far lower rates and more benefits than most private student loans.