<img height="1" width="1" style="display:none" src="https://q.quora.com/_/ad/bdd9d941ae754c498fe2d2326d029ffa/pixel?tag=ViewContent&amp;noscript=1">

What's the difference between subsidized and unsubsidized Federal loans?

Featured Stories

Filter By Categories

For most Americans headed to college, taking out a loan to pay for college is a necessity. But once you get into the weeds of learning about the different types of loans, things can get confusing. 


Ideally, you're starting to pay for college with any need-based and merit-based aid, then savings and cash. Then, you're applying for loans. 


Taking out a Federal loan can help protect yourself and get a lower rate. But what's the difference between a subsidized and unsubsidized Federal loan? Before we find out how they're different, it's essential to realize how they're similar. 


How Are Subsidized And Unsubsidized Federal Loans Similar?

The Federal government offers college undergraduate students access to both subsidized and unsubsidized loans. 


Both loans offer government-sponsored protections for students, such as flexible repayment plans and low-interest rates.


If eligible, students may take out both types of loans, but they can not exceed the Federal borrowing limit annually. 


How Are Subsidized And Unsubsidized Federal Loans different?

The most significant difference between the two loans is if you are required to pay interest while students matriculate in college. Students also have to qualify for the loans based on need.


Students must have a financial need to qualify for a subsidized loan. While the student is in college, the federal government "subsidizes" the loan by paying the loan's interest until six months after the student graduates. Students must be enrolled at least half-time in college to keep this status. Over the loan period, students may qualify for grace or delay of payment if the government decides the student is facing economic hardship or began military service. 


Any college student can qualify for an unsubsidized loan, regardless of a student's or their parents' income. How much money is awarded will depend on the student's year in school, any other financial aid they've already received, and the student's total cost of attending their college. However, while the student is still attending college, they must pay interest on the loan, including any interest that builds during grace periods or breaks from payment. 


How Much Can I Borrow In A Subsidized Or Unsubsidized Loan?

The maximum amount a student can borrow depends on if their parents claim them as a dependent or not. 


For undergraduate students who are claimed as dependents, the maximum allowed amount borrowed is $31,000 in all loans over four years, but only $23,000 of that can be from subsidized loans. 


Independent undergraduate students may borrow $57,500 for four years, with that same limit of $23,000 of subsidized loans. 


For graduate students, who are always considered independent by the Federal government, they can borrow $138,500, with a cap of $65,500 in subsidized loans. However, any federal student debt the graduate student incurred during undergraduate studies is deducted from this amount. 


In all cases, students can not borrow more than it costs to attend their school. However, for most students, this won’t cover the full cost of college. Any federal loans a student takes won’t inhibit them from taking additional loans from private lenders.  


How Much Will I Pay?

How much you will pay for college and back on your loans will depend on a few factors: how much it costs for you to attend your college, your financial status, and what year you are in school. 


Let's say that it costs a student $20,000 a year to attend an undergraduate college. If the student obtains their degree in four years, they will spend $80,000. If the student's parents claim them as a dependent, they can take out $23,000 in subsidized loans and $8,000 in unsubsidized loans, for a total of $31,000. So, after all loans, the student will still have to pay $49,000 for college plus any interest incurred on the $8,000 unsubsidized loan while they attended college.    


To pay for the remaining $49,000, students can use any cash they or their parents have on hand, any savings from a 529 plan, apply for private loans, or apply for merit-based scholarships. 


For the student who is financially independent, if they too choose to attend a school that costs $20,000 a year to attend or $80,000 over four years, what they pay will be different. Independent students can take out a total of $23,000 of subsidized loans and $34,500 in subsidized loans. So, after loans, this student would need to pay only $22,500, plus the interest on the $34,500 loan.  


Are Subsidized Loans Better Than Unsubsidized Loans?

When deciding which type of loans to apply for, students who qualify for subsidized student loans should elect to take those first. Since subsidized loans don't accrue interest while a student is in college, this will ultimately help the student pay less over time. Subsidized loans also generally have favorable interest rates. Always try to utilize subsidized loans first. 


Unsubsidized loans are still a necessary and solid option for students to help pay for the overall cost of college, but students should have a plan to pay down the interest. If possible, consider applying for an unsubsidized loan later in your college career to give the loan less time to accrue interest. For example, if you can use the subsidized loan to help pay for the first year of college, any cash, and 529 plans to get you to sophomore year, you just erased an entire year of interest payments, saving you a couple hundred to thousand dollars. 

Edmit's advice helps you to be better off after graduation.

  • Merit and financial aid estimates based on your student profile
  • Earnings estimates and financial scores for your college and major
  • Recommendations to save thousands on college

Sign up for updates

Popular Tags

Financial Aid and Scholarships* Cost of College* paying for college financial aid FAFSA Student Loans* grants and scholarships federal student loans Saving for College* Salary and Career* college tuition 529 plan cost of attendance expected family contribution private student loans college financial planning financial aid award taxes career college savings plan room and board on-campus housing merit scholarships budgeting for college college expenses federal financial aid merit-based financial aid private universities public universities edmit hidden gems edmit team college costs parent PLUS loan college applications living expenses CSS profile education expenses financial need income application fees career fit choosing a major financial aid appeal off-campus housing choosing a college college majors loan forgiveness affordable college degree programs loan repayment repayment plans researching careers student loan assistance student loan debt work-study application fee waivers career exploration college search coronavirus edmit scholarship institutional aid net price private scholarships SAT career goals college visits in-state tuition prepaid tuition plans ACT budget free tuition international students internships need-based financial aid need-blind colleges qualified higher education expenses retirement savings school-based scholarships southern colleges standardized testing tuition discount tuition guarantee tuition payment plans 401k UGMA UTMA applying to college college financial health college ranking systems college spending college transfers credit score discretionary income distance learning education savings accounts fees financial literacy full ride scholarship gap year grants health insurance options investment ivy league schools liberal arts degree meal plans midwestern colleges need-aware colleges out-of-state tuition saving state aid tuition increases western colleges 568 presidents group Inversant MEFA asset protection allowance best price campus life college advisor college credits college deposit college viability community college concurrent enrollment cost by region cost by state crowdfunding dorms early decision educational expenses esports fee waivers financial wellness for-profit universities fraternities and sororities full tuition graduate school home equity loan income share agreements job applications line of credit lists medical expenses medical school military benefits net price calculators new england colleges non-profit universities online learning online tuition out-of-state students percent need met private college consultant remote learning self-assessment siblings small business state schools student bank accounts student organizations subsidized loans title IV schools travel expenses tuition decreases tuition insurance tuition reciprocity undocumented students unsubsidized loans work-based learning