Government Student Loans: Unsubsidized vs. Subsidized Student Loans

Direct Subsidized and Direct Unsubsidized Loans are offered by the U.S. Department of Education to help eligible students cover the cost of higher education at a four-year college, university, community college, or school. The rising cost of higher education is forcing more students to take out loans to cover their expenses. While some students choose loans from private lenders, an estimated 43.4 million borrowers have federal student loans as of 2022. Federal direct loans may or may not be subsidized. The loans offer numerous benefits, including flexible repayment options, low-interest rates, loan consolidation options, and deferral and leniency programs.

Here is a breakdown of the main differences between direct subsidized and unsubsidized loans:


Undergraduate students with demonstrated financial need

All undergraduate and graduate students 

Annual Borrowing Limit for First-Year Students


$5,500 to $9,500 

Aggregate Borrowing Limit


$31,000 to $57,500

Interest rate (July 1, 2021, to July 1, 2022)


3.73% for undergraduates5.28% for graduates

Origination Fee



Interest Accrual

Interest does not accrue during school attendance, grace periods or grace periods

Borrower is responsible for all interest

What Is An Unsubsidized Loan

You are responsible for the interest for a federal unsubsidized loan from when the loan money is credited to your account. You are responsible for the entire amount.

When you begin repaying unsubsidized loans, you pay the original amount plus interest accrued since the unsubsidized student loan was delivered to you. This can add up to thousands of dollars more to pay off over the life of the loan.

Unsubsidized Loan Meaning

These are loans for undergraduate and graduate students that are not based on financial need. Interest is accrued during the training period, deferment, and grace period. Eligibility is determined by your cost of attendance minus other financial assistance (such as grants or scholarships).

What is a Direct unsubsidized loan meaning 

This loan helps cover the cost of higher education for undergraduate and graduate or professional students at a four-year college or university, community college, vocational, vocational, or technical school.

Unlike subsidized loans, those who take out unsubsidized loans are responsible for paying interest during all loan periods.

What is Federal Direct Unsubsidized Loan

This is a low-interest, non-need-based loan with flexible repayment options. It is available for undergraduate and graduate students. The Department of Education has information on eligibility, borrowing limits, interest and fees, repayment information, and the latest updates on federal student aid.

If you want to check if federal direct unsubsidized loans are worth it, check this video.

Subsidized vs Unsubsidized Federal Student Loans

What is a Subsidized Student Loan

With a subsidized direct loan, the bank or government (for federal direct subsidized loans, also known as subsidized Stafford loans) pays the interest for you while you are in school (at least half the time), during your post-graduation grace period, and if you need loan deferment.

You are effectively responsible for paying back that "wasted" interest with a subsidized loan during these periods. Once you start repaying, the government stops paying this interest, and your repayment amount includes the original loan amount and the interest accrued from that point on.



Interest does not arise in specific periods.

Only undergraduate students with significant financial need

Low-interest rates

Low annual and maximum cumulative borrowings

Eligibility for multiple repayment plans

Origination fees apply

A qualifying loan for loan forgiveness

Are Unsubsidized Loans Good

Direct unsubsidized loans are for both undergraduate and graduate students, regardless of financial need and have relatively low-interest rates. The rate is 5.28% for graduate borrowers and the same rate as subsidized loans for student borrowers (3.73%). These loans have higher annual and aggregate borrower maximums.

Direct unsubsidized loans offer income-based repayment plans and loan forgiveness. However, the borrower is responsible for all interest accrued on non-subsidized loans from when the loan is issued. Interest is also capitalized, which means that the accumulated interest is added to your principal amount at a particular time, such as at the end of your grace period. Interest is then charged on the new higher balance, causing your balance to grow faster. Over time, interest capitalization can increase the total cost of repayment.



No credit checks

The borrower is responsible for all interest

Low-interest rates

Ph.D. students pay higher interest

Higher Borrower Limits

Interest is capitalized

Eligibility for multiple repayment plans, as well as loan forgiveness under certain circumstances

Eligibility for multiple repayment plans, as well as loan forgiveness under certain circumstances

Which is better: unsubsidized or subsidized loans

When it comes to subsidized and non-subsidized loans, subsidized loans are the clear winner. If you qualify, you will pay less money in interest on a subsidized loan and save money over the life of your loan.

But not everyone will qualify for a subsidized loan. Students are often only eligible for unsubsidized loans, or they must use a combination of the two to cover the total cost of a college education. Unsubsidized loans may be a better choice because they qualify for federal benefits such as:

  • Income-Driven Repayment (IDR): After your loans are repaid, you can enroll in an IDR plan. These plans base your payments on a longer term and a percentage of your discretionary income, so you can significantly reduce your payment amount.

  • Loan forgiveness: Federal loans are eligible for forgiveness programs such as public service, teacher loans, and IDR plan forgiveness.

  • Loan repayment: Federal loans can be repaid if entirely and permanently disabled.

  • Abstinence or Deferral: If you return to school, lose your job, or become seriously ill, you can temporarily suspend your federal loan payments.

Private student loans are not eligible for this protection and carry much higher interest rates than direct federal loans. The Institute for College Access and Success reported that the average fixed interest rate on co-signed private loans was 10.2% in 2019.

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