Subsidized vs. Unsubsidized Student Loans

There are a LOT of phrases to wrap your head around when you start looking at student loans. One of the most basic is this: subsidized vs. unsubsidized student loans. What does it mean? How does it affect your student loan decisions? 

For most college students, the first place to look for student loans is through federal programs offered by the U.S. government.

After filling out the Free Application For Student Aid (FAFSA), students can be offered two kinds of student loans: subsidized loans vs. unsubsidized loans.

To subsidize: to pay part of the cost, reducing the price for the buyer.

In a subsidized loan, the U.S. government covers some of the interest on your loans while you’re in school.

At the highest level, subsidized loans offer cost savings because the government covers the interest on your loans while you’re in school. With unsubsidized loans, you’ll end up paying more interest, but anyone can qualify and the amount you can borrow is higher.

It’s important to know that these two loan structures have much in common. Let’s compare and contrast the two, starting with what they have in common.

Subsidized vs. unsubsidized student loans: what they have in common

The loan you choose depends on several factors, like how much financial help you need, your current financial status, the amount you can qualify for, and how quickly you think you’ll be able to repay your debt. Each student is unique in their academic journey, and loans reflect that divergence.

Here are some of the features that subsidized and unsubsidized loans have in common.

1. Application & disbursement process

The first step to securing either a subsidized or unsubsidized loan is the same: fill out your FAFSA on time. Your FAFSA will detail any and all financial aid and assistance you qualify for through the federal government, the state, your school, or other relevant organizations. Once you receive your FAFSA, you will be able to see what “free” money you have available, and what your options are in terms of subsidized and unsubsidized loans. 

2. Interest rates for undergraduates

The current fixed annual percentage rate for both subsidized and unsubsidized loans is 4.53% for loans disbursed on or after July 1, 2018, through June 30, 2019. Subsidized loans are not offered to graduate students, and the interest rates for unsubsidized graduate school loans are approximately 2.5% higher than undergraduate loans.

3. The length of the loan period

No matter what type of loan you select, the length of your financial aid eligibility remains the same. The period you qualify for is always 150 percent of your stay in an academic program. For a traditional four-year college degree, this means you get an additional two years of funding to pad out your education.

4. The fees you pay

Specific fees come standard with both loans. For each kind of loan, you’ll be paying a fee of around 1 percent. This level can fluctuate slightly depending on the date on which you qualify for your loan, but it will remain around this number.

Subsidized vs. unsubsidized student loans: what’s different

Now that you know the features these loans share, it’s critical to understand which one works for your unique circumstances. Let’s take a look at how subsidized loans and unsubsidized loans are different.

1. Who can borrow

Subsidized loans are strictly for undergraduate students that have demonstrated financial need, as determined by the information supplied when you submit the Free Application for Federal Student Aid, or FAFSA. Unsubsidized loans are available to more people, throughout undergraduate, graduate, and professional students.

2. The amount you’ll pay in interest

As the names suggest, subsidized loans are subsidized by the US government, meaning that the department of education covers the interest you owe on the loan until you’ve graduated, as long as you are enrolled at least half time. With unsubsidized loans, interest begins accruing immediately after disbursement, and even during the 6 month grace period you have after graduating before your full payments begin.

3. The amount you can borrow

Generally speaking, subsidized loans have lower annual loan limits than unsubsidized loans. The amount you can borrow depends on whether or not you are considered “dependent” or “independent,” your cost of attendance, your year in school, and a few other things. The subsidized loan limit for your entire undergraduate education is $23,000, while the limit it 57,500 for independent undergraduate students.


Hopefully you now have a better handle on the differences and similarities between subsidized and unsubsidized loans. 

Paying for college is a daunting task, especially when it falls to an eighteen to twenty-two year-old with little to no experience with financial institutions and government processes. 

For almost everybody, filling out your FAFSA is the first step to wrapping your arms around the problem of paying for college, and subsidized and unsubsidized federal loans are a key component in the financing mix that makes up most college students’ payment toolbox. 

Still, for so many students, a funding gap exists between what’s available to them on their FAFSA, including student loans, and what they need to pay for school. That’s where Funding U comes in, offering no co-signer student loans that put you, the student, in charge of your future.

No cosigner student loans from Funding U

At Funding U, we make no cosigner student loans directly to college students. We don’t look at your parents’ credit; we look at you, your academic progress, and your financial plan. Apply online.

Check out our latest blog posts for tips and useful info about managing money in college, navigating the job market, and more.

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