Subsidized vs. Unsubsidized Loans: Which is Better?

Edited by Hannah Locklear

If you want a federal direct student loan, you may wonder which plan best suits your needs.

Subsidized loans target financially needy students. The amount they can borrow is the enrollment cost minus expected family contribution and other financial aid. Unsubsidized loan applicants do not need to prove that they are struggling financially.

Both are low-interest loans when compared to private lenders' interest rates. This article explains which loan type may work best in your situation. First, let's discuss the significant differences between these two types of loans.

What is the difference between subsidized and unsubsidized loans?

The difference between a subsidized and unsubsidized loan lies in the amount you can borrow, terms of repayment, interest, and who can apply. Below, we’ll break down each of these factors in detail.

Who can apply?

Subsidized loans are strictly available to undergraduate students who can prove their or their parents' economic struggles.

On the other hand, unsubsidized loans are available to more students, including undergraduate, graduate, and professional students. No proof of financial need is necessary.

To qualify for either loan, you must be enrolled at least half-time at an institution participating in the direct federal loan program. You must be a US citizen or an eligible non-citizen. You also need a valid Social Security number.

Applicants for both loans must also hold a high school diploma or equivalent. You may not qualify if you have defaulted on an existing federal loan.

Students can apply here.

How does interest accrue?

Direct subsidized and direct unsubsidized federal loans are low-interest. They are considerably cheaper when compared to private lenders.

For loans disbursed between July 1, 2022, and June 30, 2023, interest rates for undergraduate students are 4.99%, and for graduate students, 6.54%. These are fixed rates for the life of the loan.

The difference comes in how interest accrues. For subsidized loans, the federal government pays interest for as long as you are enrolled in school at least half-time, for the grace period (six months) after you graduate or drop below half-time, and during loan repayment deferment.

Unsubsidized loan interest begins to accrue immediately and adds to the total loan you take out by graduation unless you pay off monthly interest while in school. The government does not pay any interest on unsubsidized loans.

A 1.057% loan fee is deducted from each disbursement for loans disbursed on Oct 1, 2020, to before Oct 1, 2023, for both loans.

How much can applicants receive?

The federal government applies an annual and aggregate limit on how much students can take. The amount should not exceed the student's financial needs. The school you plan to attend also determines how much you will receive.

Direct subsidized and unsubsidized loans have an annual limit of between $5,500 and $12,500 for undergraduates. The limit increases gradually with each subsequent academic year but may be at most $12,500. Students' dependency status also affects how much they can receive per year.

The annual direct unsubsidized loan yearly limit for graduate and professional degree students is $20,500. Since 2012, subsidized loans have not been available to graduate or professional students.

The aggregate limit is $57,500 for undergraduates, $23,000 of which may be subsidized. Graduate students can take out a total of $138,500, $65,500 of which may only be subsidized if it was disbursed before July 1, 2012, or taken for a prior undergraduate program.

Which is better: A subsidized or unsubsidized loan?

As the discussion above has shown, each loan type suits different students.

A direct subsidized loan may be best for you if:

• You can prove that you or your parents are financially needy.
• You are an undergraduate student.
• You want to pay less interest.

A direct unsubsidized loan is best for:

• Graduate or professional students.
• Students who want a higher loan limit.
• Students who are okay with paying slightly more interest.
• Those who wish to skip credit checks and financial ability inquiries.

The following are some disadvantages to consider before deciding which federal direct loan to take.

Subsidized loan cons

• Not available to graduate or professional students.
• Applicants must demonstrate financial need.
• Lower loan limit.

Unsubsidized loans cons

• Students pay all the interest without the government's help.

Planning for college starts with acquiring money for tuition and other expenses. The federal government has made it a lot easier to access student aid. With low-interest rates, students who need help paying for college can afford to chase their dreams.

Whether you choose a direct subsidized or a direct unsubsidized student loan, you will get better terms and rates than a student who goes to a private lender.

SoloSuit provides personalized help for consumers struggling with debt repayment.

What is SoloSuit?

SoloSuit makes it easy to fight debt collectors.

You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit. (We can help you in all 50 states.)

How to answer a summons for debt collection in your state

Here's a list of guides for other states.

All 50 states.

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Montana
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Texas
• Utah
• Vermont
• Virginia
• Washington
• West Virginia
• Wisconsin
• Wyoming

Guides on how to beat every debt collector

Being sued by a different debt collector? Were making guides on how to beat each one.

• Absolute Resolutions Investments LLC
• Accredited Collection Services
• Alliance One
• Amcol Clmbia
• American Recovery Service
• Asset Acceptance LLC
• Asset Recovery Solutions
• Associated Credit Services
• Autovest LLC
• Cach LLC
• Cavalry SPV I LLC
• Cerastes LLC
• Colinfobur
• Covington Credit
• Crown Asset Management
• CTC Debt Collector
• Cypress Financial Recoveries
• Delanor Kemper & Associates
• Eagle Loan of Ohio
• Educap
• Estate Information Services
• FIA Card Services
• Forster & Garbus
• Freshview Solutions
• Fulton Friedman & Gullace LLP
• Harvest Credit Management
• Howard Lee Schiff
• Hudson & Keyse LLC
• Integras Capital Recovery LLC
• Javitch Block
• Jefferson Capital Systems LLC
• LVNV Funding
• Mannbracken
• Mariner Finance
• Medicredit
• Michael J Adams PC
• Michael J Scott
• Midland Funding LLC
• Mullooly, Jeffrey, Rooney & Flynn
• Mountain Land Collections
• MRS Associates
• National Collegiate Trust
• Nationstar Foreclosure
• Northstar Capital Acquisition
• NCEP LLC
• NRC Collection Agency
• OneMain Financial
• Palisades Collection LLC
• Pallida LLC
• Paragon Revenue Group
• Pinnacle Collections Agency
• PMAB LLC
• Portfolio Recovery Associates
• Provest Law
• PYOD LLC
• Reunion Student Loan Finance Corporation
• Revenue Group
• Regents and Associates
• RSIEH
• Salander Enterprises LLC
• Second Round Sub LLC
• Security Credit Services
• Sherman Financial Group
• Suttell and Hammer
• T-Mobile
• Transworld Systems
• Tulsa Teachers Credit Union
• UCB Collection
• Velo Law Office
• Velocity Investments
• Waypoint Resource Group
• Weinberg and Associates
• Wolpoff & Abramson

Win against credit card companies

Is your credit card company suing you? Learn how you can beat each one.

• Bank of America
• Capital One
• Chase
• Credit One Bank
• PayPal Synchrony Card
• SYNCB/PPEXTR
• Synchrony Bank
• Target National Bank
• Wells Fargo

Going to Court for Credit Card Debt — Key Tips

How to Negotiate Credit Card Debts

How to Settle a Credit Card Debt Lawsuit — Ultimate Guide

Get answers to these FAQs

Need more info on statutes of limitations? Read our 50-state guide.

Why do debt collectors block their phone numbers?

How long do debt collectors take to respond to debt validation letters?

What are the biggest debt collector companies in the US?

Is Zombie Debt Still a Problem in 2019?

SoloSuit FAQ

If a car is repossessed, do I still owe the debt?

Is Portfolio Recovery Associates Legit?

Is There a Judgment Against Me Without my Knowledge?

Should I File Bankruptcy Before or After a Judgment?

What is a default judgment?— What do I do?

Summoned to Court for Medical Bills — What Do I Do?

What Happens If Someone Sues You and You Have No Money?

What Happens If You Never Answer Debt Collectors?

What Happens When a Debt Is Sold to a Collection Agency

What is a Stipulated Judgment?

What is the Deadline for a Defendants Answer to Avoid a Default Judgment?

Can a Judgement Creditor Take my Car?

Can I Settle a Debt After Being Served?

Can I Stop Wage Garnishment?

Can You Appeal a Default Judgement?

Do I Need a Debt Collection Defense Attorney?

Do I Need a Payday Loans Lawyer?

Do student loans go away after 7 years? — Student Loan Debt Guide

Am I Responsible for My Spouses Medical Debt?

Should I Marry Someone With Debt?

Can a Debt Collector Leave a Voicemail?

How Does Debt Assignment Work?

What Happens If a Defendant Does Not Pay a Judgment?

How Does Debt Assignment Work?

Can You Serve Someone with a Collections Lawsuit at Their Work?

What Is a Warrant in Debt?

How Many Times Can a Judgment be Renewed in Oklahoma?

Can an Eviction Be Reversed?

Does Debt Consolidation Have Risks?

What Happens If You Avoid Getting Served Court Papers?

Does Student Debt Die With You?

Can Debt Collectors Call You at Work in Texas?

How Much Do You Have to Be in Debt to File for Chapter 7?

What Is the Statute of Limitations on Debt in Washington?

How Long Does a Judgment Last?

Can Private Disability Payments Be Garnished?

Can Debt Collectors Call From Local Numbers?

Does the Fair Credit Reporting Act Work in Florida?

The Truth: Should You Never Pay a Debt Collection Agency?

Should You Communicate with a Debt Collector in Writing or by Telephone?

Do I Need a Debt Negotiator?

What Happens After a Motion for Default Is Filed?

Can a Process Server Leave a Summons Taped to My Door?

Learn More With These Additional Resources:

Need help managing your finances? Check out these resources.

How to Make a Debt Validation Letter - The Ultimate Guide

How to Make a Motion to Compel Arbitration Without an Attorney

How to Stop Wage Garnishment — Everything You Need to Know

How to File an FDCPA Complaint Against Your Debt Collector (Ultimate Guide)

Defending Yourself in Court Against a Debt Collector

Tips on you can to file an FDCPA lawsuit against a debt collection agency

Advice on how to answer a summons for debt collection.

Effective strategies for how to get back on track after a debt lawsuit

New Hampshire Statute of Limitations on Debt

Sample Cease and Desist Letter Against Debt Collectors

The Ultimate Guide to Responding to a Debt Collection Lawsuit in Utah

West Virginia Statute of Limitations on Debt

What debt collectors cannot do — FDCPA explained

Defending Yourself in Court Against Debt Collector

How to Liquidate Debt

Arkansas Statute of Limitations on Debt

Youre Drowning in Debt — Heres How to Swim

Help! Im Being Sued by My Debt Collector

How to Make a Motion to Vacate Judgment

How to Answer Summons for Debt Collection in Vermont

North Dakota Statute of Limitations on Debt

ClearPoint Debt Management Review

Indiana Statute of Limitations on Debt

Oregon Eviction Laws - What They Say

CuraDebt Debt Settlement Review

How to Write a Re-Aging Debt Letter

How to Appear in Court by Phone

How to Use the Doctrine of Unclean Hands

Debt Consolidation in Eugene, Oregon

Summoned to Court for Medical Bills? What to Do Next

How to Make a Debt Settlement Agreement

Received a 3-Day Eviction Notice? Heres What to Do

How to Answer a Lawsuit for Debt Collection

Tips for Leaving the Country With Unpaid Credit Card Debt

Kansas Statute of Limitations on Debt Collection

How to File in Small Claims Court in Iowa

How to File a Civil Answer in Kings County Supreme Court

Roseland Associates Debt Consolidation Review

How to Stop a Garnishment

Debt Eraser Review

Do Debt Collectors Ever Give Up?

Can They Garnish Your Wages for Credit Card Debt?

How Often Do Credit Card Companies Sue for Non-Payment?

How Long Does a Judgement Last?

​​How Long Before a Creditor Can Garnish Wages?

How to Beat a Bill Collector in Court