What is a Direct Subsidized Loan vs. a Direct Unsubsidized Loan?

Did you know that there are several different types of federal student loans? Maybe not. And did you know that there’s a huge difference between these loan types – a difference that could result in thousands of dollars in interest?

If you’re new to student loans, keep reading to understand the difference between federal Direct Subsidized Loans and federal Direct Unsubsidized Loans, how they work and which one is better.

What is a Direct Subsidized Loan vs. a Direct Unsubsidized Loan?

There are two main types of federal student loans: subsidized and unsubsidized. To qualify for Direct Subsidized Loans, your family must fall below certain financial criteria. Direct Unsubsidized Loans have no such requirement, so they’re much more common.

Unfortunately, Direct Subsidized Loans have lower maximum and aggregate limits so many students will need to take out both types of loans to pay for school. 

CharacteristicDirect Subsidized LoanDirect Unsubsidized Loan
Must meet certain financial requirementsYesNo
Interest accrues during enrollment and deferment periodsNoYes
Eligible for graduate studentsNoYes
Repayment termsBetween 10 and 25 years, depending on repayment planBetween 10 and 25 years, depending on repayment plan
Eligble for loan forgiveness programsYesYes 
Must complete FAFSA to be eligibleYesYes
Need a co-signerNoNo

How to apply for Direct Subsidized Loans and Direct Unsubsidized Loans

No matter what kind of federal student loan you’re applying for, You need to complete the Free Application for Federal Student Aid (FAFSA).

The FAFSA requires that you provide information about your and your parent’s or guardian’s finances including income and assets. When you complete the FAFSA, you will receive your Expected Family Contribution (EFC) figure, which shows how much your family can be expected to pay toward college for that year.

Once you submit the FAFSA to the schools you’re applying to, their financial aid department will review your EFC and compare it to their Cost of Attendance (COA). If your EFC is below the COA, then you may qualify for need-based aid, including Direct Subsidized Loans, Pell grants, work-study and the Federal Supplemental Educational Opportunity Grant (FSEOG)

However, if your EFC is higher than the COA, then you will not be eligible for need-based aid. But you can still qualify for Direct Unsubsidized Loans.

Make sure to submit the application by the official FAFSA deadline so you can maximize how much aid you qualify for.

Direct Subsidized Loans are only available for undergraduate students, while Direct Unsubsidized Loans are available for both undergraduate and graduate students.

Interest rates and fees

For undergraduate students, interest rates are the same for both Direct Subsidized Loans and Direct Unsubsidized Loans. Rates are higher for graduate students who take out Direct Unsubsidized Loans. Graduate students are not eligible for Direct Subsidized Loans.

Loan limits

One of the biggest differences between Direct Subsidized Loans and Direct Unsubsidized Loans is the annual and aggregate limit. Direct Subsidized Loans have a much lower annual and aggregate limit. 

The aggregate limit is $23,000 for Direct Subsidized Loans, while the aggregate limit for Direct Unsubsidized Loans is $31,000 for dependent students and $57,500 for independent students. 

When you apply to college as an undergraduate, you will be classified either as a dependent student or an independent student. Most students receiving an undergraduate degree are dependent students. 

The Department of Education requires that you meet one of the following criteria to be an independent student:

  • 24 or older
  • Married
  • Attending a professional or graduate school
  • Veteran or current member of the military
  • Orphan or a ward of the court
  • Have legal dependents other than a spouse
  • Emancipated minor
  • Homeless or at risk of becoming homeless

If you are a dependent student, you will qualify for less in total federal financial aid than independent students. Here’s how the annual limit compares: 

Annual Loan LimitDependent StudentIndependent Student
First-year undergraduate $3,500 in Direct Subsidized Loans; $5,500 in Direct Unsubsidized Loans$3,500 in Direct Subsidized Loans; $9,500 in Direct Unsubsidized Loans
Second-year undergraduate $4,500 in Direct Subsidized Loans; $6,500 in Direct Unsubsidized Loans$4,500 in Direct Subsidized Loans; $10,500 in Direct Unsubsidized Loans
Third-year and higher undergraduate$5,500 in Direct Subsidized Loans; $7,500 in Direct Unsubsidized Loans$5,500 in Direct Subsidized Loans; $12,500 in Direct Unsubsidized Loans
Graduate studentNot eligible$20,500 in Direct Unsubsidized Loans

For more information how to pay off your student loans fast, check out this article.

FAQs about Direct Unsubsidized Loans and Direct Subsidized Loans

Can I have both Direct Unsubsidized Loans and Direct Subsidized Loans?

There is no rule that says you cannot take out both Direct Unsubsidized Loans and Direct Subsidized Loans. 

Are both Direct Unsubsidized Loans and Direct Subsidized Loans eligible for the same loan forgiveness and repayment options?

There are no specific restrictions on loan forgiveness programs or repayment plans for either Direct Unsubsidized Loans and Direct Subsidized Loans. Both types of loans are still eligible for Public Service Loan Forgiveness, Teacher Loan Forgiveness and income-driven repayment plan forgiveness.   

What is a Direct Consolidation Loan?

If you want to merge multiple federal student loans into one, you can consolidate with a Direct Consolidation Loan. A Direct Consolidation Loan will have the weighted average of the interest rates of all your loans.

When do I need to start paying back both Direct Unsubsidized Loans and Direct Subsidized Loans?

When you graduate from college , drop out or drop below part-time status, your student loans will come due. 

Both Direct Unsubsidized Loans and Direct Subsidized Loans are eligible for a six-month grace period after graduation. During this deferment period, interest will not accrue on Direct Subsidized Loans, but it will accrue on Direct Unsubsidized Loans.

Related articles

How to Pay for College

Applying for college is one thing. But paying for...

Should You Refinance Private Student Loans?

When you have private student loans, you may not...

How to Get a Student Loan

If you’re planning on going to college, you will...

Student Loans for Bad Credit

Getting into college can feel like a ticket to...

How To Pay Off Student Loans Fast

1. Qualify for a loan forgiveness plan Sometimes paying off...