Your guide to unsubsidized loans

Wondering if a loan could help you pay for college? With so many student loan options, it’s hard to know where to start. Most student loans are either federal or private. And federal student loans typically fall into one of two categories: subsidized and unsubsidized. 

It may be easier to qualify for an unsubsidized loan than a subsidized one, but interest accrues from the moment an unsubsidized loan is disbursed. So, what exactly does this mean for borrowers? And how do you know if this option could be right for you?  

Read on to learn about unsubsidized loans and how they work. 

Key takeaways

• The Department of Education (DOE) offers subsidized and unsubsidized loans through its Direct Loan Program.
• Unsubsidized loan borrowers don’t have to prove financial need, but subsidized loans are need based. 
• Unsubsidized loans accrue interest while the borrower is in school, after they graduate and during periods of deferment. 
• Students must complete the Free Application for Federal Student Aid (FAFSA®) to apply for unsubsidized loans.

A Direct Unsubsidized Loan is a federal student loan that’s available to both undergraduate and graduate students. Borrowers may qualify for this type of loan regardless of financial need. 

An unsubsidized loan starts accruing interest as soon as it’s disbursed. Borrowers aren’t required to pay the interest while they’re in school or during grace periods. But unpaid interest will be added to the loan’s principal balance, and this can increase the total borrowing costs.

Students don’t have to prove financial need for unsubsidized loans, but they’re still required to meet basic eligibility requirements. These requirements apply to all types of federal student aid and include being a U.S. citizen or eligible noncitizen, maintaining at least part-time enrollment and more. You can read the DOE’s full list of requirements for more information. 

Unsubsidized loans have yearly and total, sometimes called aggregate, borrowing limits. These limits vary based on a student’s year in school and their dependency status, which refers to whether a student’s family financially supports them. 

A student’s school determines how much they can borrow, based on the cost of attendance and the student’s FAFSA information. So the actual amount a student is awarded could be less than the borrowing limit.

The right loan choice for one student may not be right for another. When you compare subsidized and unsubsidized loans, there are some key things to consider. Understanding eligibility requirements, borrowing limits and the way interest applies to each loan could help you make the best borrowing decisions for your situation. 

Subsidized loans are only awarded to undergraduate students with financial need. The maximum subsidized loan amount a student can borrow over the course of their education is $23,000. These loans don’t accrue interest while students are enrolled in school at least part time or during deferment periods. That’s why they often have lower borrowing costs than unsubsidized loans.

Unsubsidized loans aren’t based on financial need and they’re available to undergraduate and graduate students. They also have higher loan limits for borrowers, which vary based on a borrower’s year in school and dependency status. 

Here’s a comparison of borrowing limits for subsidized and unsubsidized loans:

It’s important to note that the $138,500 unsubsidized loan limit for graduate students includes any federal loan funds borrowed during undergraduate studies. In addition to having different loan limits, undergraduates receive different interest rates than graduate borrowers. 

Federal student loan interest rates aren’t determined by a borrower’s credit scores. They’re set by Congress and determined by federal law. The interest rate can change from one year to the next, but once a loan is disbursed the rate remains fixed. 

Undergraduate federal student loan borrowers will receive a 4.99% interest rate for both subsidized and unsubsidized loans. Graduate students will have a 6.54% interest rate for their unsubsidized loans. These rates apply to students whose first loan is disbursed between July 1, 2022, and July 1, 2024. 

Borrowers will also pay a loan origination fee. The current 1.057% fee applies to Direct Subsidized and Direct Unsubsidized loans that are initially disbursed before October 1, 2023. 

There are many different types of student loans. When you compare your borrowing options, it’s helpful to think of the pros and cons of each one. 

Federal student loans typically have lower interest rates and better terms than private ones. So experts generally recommend students explore their federal student loan options first. 

Most federal loans are either subsidized or unsubsidized. Each of these loans has its own eligibility requirements, loan limits and borrowing costs. 

If you’re thinking about using a federal student loan, here are some things you’ll probably want to consider:

If you’re looking for ways to pay for school, it’s important to research your options and ask questions. Here are some answers to commonly asked questions about student loans:

Unsubsidized loans could help students pay for college costs that other types of aid, like subsidized loans, won’t cover. And if you’re a graduate student or can’t prove financial need, unsubsidized loans may be your only federal option. 

An unsubsidized loan accrues interest from the moment it’s disbursed, so it can have higher borrowing costs than a subsidized loan. But unsubsidized loans can still be a good option because these loans typically have lower borrowing costs and better terms than private loans. 

Looking for more financial tips for students? There are strategies that can help with managing your money in college. You could also learn how to build credit when you use a credit card—like a student credit card from Capital One—responsibly.