Subsidized vs. Unsubsidized Student Loans: What’s the Difference?

If you’re considering federal student loans to pay for your education, you’ll need to start the process by filling out the Free Application for Federal Student Aid (FAFSA®).

After you submit the FAFSA application, you’ll see which types of financial aid and federal student loans you qualify for (subsidized vs. unsubsidized loans), how much money you may receive, and what your funding gap may be. 

Before you accept your financial aid offer, it’s important to understand the different types of aid, especially the difference between subsidized and unsubsidized loans. This blog will outline those differences so you can make the best choice for your situation.

At a Glance: Subsidized vs. Unsubsidized Loans

The following table gives you a basic overview of subsidized vs. unsubsidized loans based on your student status and financial situation.

	Unsubsidized	Subsidized
Who is eligible?	Undergraduate or graduate students	Undergraduates with financial need
When does interest accrue?	Interest accrues as soon as you receive the funds. There are no grace periods.	No interest accrues while you’re in school or during your 6-month grace period.
Loan limits (for dependent undergraduates)	$5,500-$7,500 combined limit of unsubsidized and subsidized loans.	$3,500-$,5,500 depending on your academic year.

What Is a Subsidized Loan?

A subsidized loan is a type of federal student loan available to undergraduate students with financial need. With this loan, the government pays the interest on your behalf while you’re in school at least half-time, for the first six months after you leave school, and during a deferment period. Since your student loan interest doesn’t accrue during this time, the overall cost of the loan is reduced.   

Eligibility Requirements for Subsidized Loans

Subsidized loans are only available to undergraduate students with financial need. The information you and contributors put on the FAFSA will determine whether you qualify for a subsidized loan. Make sure to submit your FAFSA before the deadline so you know if you qualify for a subsidized loan.

To be FAFSA eligible, you need to be a U.S. citizen or eligible non-citizen, be enrolled in a qualified program, and maintain good academic status.

Subsidized Loan Limits

There are limits on how much you can get in subsidized and unsubsidized loans each academic year. If you’re a dependent or independent undergraduate student, or a graduate student whose parents don’t qualify for PLUS loans, these are the annual subsidized loan limits:

• Year one: No more than $3,500 can be subsidized loans.
• Year two: No more than $4,500 can be subsidized loans.
• Year three and beyond: No more than $5,500 can be subsidized loans.

How Interest Works for Subsidized Loans

Interest on subsidized loans does not accrue while you’re still attending school as a half-time or full-time student.  Student loan interest won’t accrue if you defer your loan due to financial hardship. The government pays the interest as it adds up during these periods, which means you pay less overall. 

Pros and Cons

Pros of subsidized loans:  

• You don’t have to worry about accruing interest while you’re in school. 
• The cost of a subsidized vs. unsubsidized loan is lower because it does not accrue interest over periods discussed above. 

Cons of subsidized loans:  

• You must meet certain criteria to qualify, which means not everyone is eligible. 
• Borrowing limits for subsidized vs. unsubsidized student loans are lower, so you may need additional funding to cover all your school expenses.

What Is an Unsubsidized Loan?

An unsubsidized loan is another type of federal loan available to undergraduate and graduate students. Unlike subsidized loans, with unsubsidized loans, you don’t get any help on the interest. You can still defer payments until you finish school; however, interest will continue to accrue over the deferment period.  

Eligibility Requirements for Unsubsidized Loans

With unsubsidized loans, students don’t need to demonstrate financial need but they still need to complete the FAFSA. Most of the requirements remain the same as they do for FAFSA eligibility, including: 

• You must be a U.S. citizen or have eligible non-citizenship 
• You must have a valid Social Security number 
• You must be enrolled in a qualified program
• You must maintain good academic standing

Unsubsidized Loan Limits

There are limits on how much you can get in unsubsidized loans each academic year. If you are a dependent undergraduate student whose parents don’t qualify for a PLUS loan, these are the loan limits:

• Year one: No more than $5,500 in combined subsidized and unsubsidized
• Year two: No more than $6,500 in combined subsidized and unsubsidized
• Year three and beyond: No more than $7,500 in combined subsidized and unsubsidized

If you are a graduate student, $20,500 is the unsubsidized loan limit for all years you’re in school.

How Interest Works for Unsubsidized Loans

Interest begins to accrue on unsubsidized loans as soon as funds are disbursed to your school and will accrue interest during grace periods, deferment, and when you’re enrolled in school.  

You have the option to pay interest on unsubsidized loans as you go, rather than allowing it to accrue. If you allow it to accrue, it’s a capitalized student loan in which any unpaid interest gets added to your principal student loan amount. This ultimately raises your overall loan amount. 
The interest rate on unsubsidized loans is usually higher than on subsidized loans, so make sure you understand your options to choose the best loan option for your situation.

Pros and Cons

Pros of unsubsidized loans: 

• There are no need-based requirements for students. 
• Unsubsidized loans have higher borrowing limits, so you can get more money to cover your education expenses. 

Con of unsubsidized loans:  

• Unsubsidized loans accrue interest when you’re still in school, which you will need to pay back. 
• There is a higher total cost with unsubsidized loans because of interest accrual being added to the principal loan amount.

The Difference Between Subsidized vs. Unsubsidized Student Loans

A few key differences between subsidized vs. unsubsidized student loans include interest rates, eligibility requirements, loan limits, and repayment options. Understanding your options is crucial to choosing the right loan for your financial situation, especially if you’re considering federal vs. private student loans. 

Interest Rates

The most significant differences between subsidized vs. unsubsidized loans are the interest payments and how interest accrues. 

Subsidized loans start accruing interest six months after you graduate or leave school, also known as the grace period. If you’re attending school at least half-time or have deferred payments, you don’t have to worry about interest until your payments begin. Instead, the U.S. Department of Education will cover interest payments until six months after you leave school. 

Unsubsidized loans start to accrue interest right away. After funds are disbursed to your school, interest begins to add up during in-school, deferment, and any grace periods.  

The government doesn’t cover the interest on an unsubsidized loan, and you must pay off all the accumulated interest. 

Take a look at this chart that shows subsidized vs. unsubsidized loan balances based on interest accrual.

	Amount borrowed	Loan balance after 4 years of school
Subsidized loan	$3,500	$3,500 (principal) + $0 (interest)
Unsubsidized loan	$2,500	$2,500 (principal) + $653 (interest)

Note: This example uses the maximum subsidized and unsubsidized loan amounts for year one students. The interest calculation is based on the 6.53% interest rate for undergraduate students in the 2024-2025 school year and assumes no payments were made during the 4 years of school.

Eligibility

If you’re curious about how to qualify for student loans, remember that subsidized loans are only available to undergraduates with financial need. Graduate or undergraduate students can get unsubsidized loans, and there is no financial need requirement. 

If you’re applying for a federal student loan, complete the FAFSA first. 

Loan Limits

As highlighted above, there are loan limits for subsidized vs. unsubsidized student loans.

Subsidized loans have lower loan limits but typically cost less because interest doesn’t accrue until you’re out of school. Unsubsidized loans can have higher costs because interest begins accruing as soon as funds are disbursed. 

Federal loans have annual and aggregate loan limits. These refer to how much you receive per academic year and how much you can borrow for undergraduate or graduate programs. The amount you’re eligible for each year might be lower than the annual loan limit based on your year in school and if you’re an independent or dependent student. 

Here are aggregate loan limits based on student type: 

• Dependent undergraduate student: $31,000 
• Independent undergraduate student: $57,500 
• Professional or graduate student: $138,500 

You may explore private college loans if you need more money after you reach the aggregate loan limits. 

Unsubsidized vs. Subsidized Loans: What’s Right for Me?

Before taking out a student loan, make sure to fill out the FAFSA to see what other financial aid you may qualify for, such as grants and scholarships. Typically, grants and scholarships don’t need to be paid back, which ultimately saves you and your family money. Taking on too much debt at once can be a financial burden later.

If you do need to take out loans, remember that subsidized loans are generally less expensive; however, they have lower loan limits and aren’t available to graduate students. An unsubsidized loan may be more appropriate if you are a graduate student and need a higher borrowing limit. If you need more funding, private student loans are also an option.

Ascent offers fixed or variable interest rate loans and flexible repayment options – with or without a cosigner. We also provide scholarship opportunities, free student resources, and financial planning tools to help students achieve their educational goals.   

Paying for college is a huge responsibility. Remember to do plenty of research and explore each option available to you to make the right decision. 

FAQ

Here are some questions people commonly ask when considering subsidized vs. unsubsidized loans. 

Do You Pay Back Subsidized Loans?

Most students choose to begin paying subsidized loans after graduation, but you can start making payments anytime you want. You must start making payments six months after you graduate or leave school. Make sure you choose a payment plan that makes sense. Remember, you can always change your payment plan by contacting your loan servicer.

Do You Have to Pay Unsubsidized Student Loans While in School?

No, you don’t have to start making payments on federal unsubsidized loans while in school. However, interest will start to accrue as soon as the loan is disbursed. You can defer payments for unsubsidized student loans until six months after graduation.

Do Unsubsidized Student Loans Affect Credit Scores?

Student loans impact your credit score as installment debts (like car loans) and show up on your credit history as soon as funds are disbursed. ​​They can help your credit score by increasing your account history and credit mix, but they can hurt your credit score if you have extensive debt or miss payments. Unsubsidized federal student loans don’t require a hard credit pull, which could negatively affect your score.