How do subsidized and unsubsidized loans work

Parents , however, cannot receive direct unsubsidized loans. In the federal loan program, they can only take out parent PLUS loans , which have higher interest rates and fees. Both direct subsidized and unsubsidized loans have relatively low annual loan limits.

You may still be able to get a PLUS loan, though, by using a qualified co-signer , or by explaining the reasons for the negative marks on your credit to the satisfaction of the U. Department of Education. That usually means taking a certain number of credits each semester or maintaining a certain GPA.

There are some substantial differences between federal direct subsidized and unsubsidized loans. Undergraduates only Undergraduates, graduate students and professional students. How interest is treated Borrower does not pay interest while in school at least half-time, during the grace period or during deferment periods Interest accrues at all times. Interest rate 0. Loan disbursement fee 0. Federal student loans have several repayment options. Direct subsidized and unsubsidized loans qualify for all federal repayment plans, though you may have to meet other criteria for certain income-driven repayment plans.

Your other repayment options include:. If you need to pause payments, you can contact your servicer and apply for deferment or forbearance for up to 36 months. If you have subsidized loans and you qualify for deferment, this is the lower-cost choice. But either program will give you breathing room to pay other bills temporarily. For longer-term financial hardship, income-driven repayment makes more sense.

The FAFSA will help schools determine if you have enough financial need to qualify for subsidized loans. Most recently, she was a staff writer and spokesperson at NerdWallet, where she wrote "Ask Brianna," a financial advice column syndicated by the Associated Press. Select Region. United States. United Kingdom. Brianna McGurran. The maximum amount you can borrow each academic year depends on your grade level and dependency status.

See the chart below for annual and aggregate lifetime borrowing limits. You may not be eligible to borrow the full annual loan amount because of your expected family contribution or the amount of other financial aid you are receiving. To see examples of how your Subsidized or Unsubsidized award amount will be determined. If you are a first-time borrower on or after July 1, , there is a limit on the maximum period of time measured in academic years that you can receive Direct Subsidized Loans.

If this limit applies to you, you may not receive Direct Subsidized Loans for more than percent of the published length of your program. Alberta Gator is a first year dependent undergraduate student. With a subsidized loan, the government covers some of your interest charges, which helps you save money over your repayment term.

Here are a few common situations where you might choose unsubsidized loans:. Unfortunately, you might not qualify for enough federal financial aid to cover the total cost of your program. With a private student loan, you work with a private lender to borrow the money you need. Terms vary from lender to lender, but you can typically borrow up to the total cost of attendance. Credible makes it easy to do just that — plus, you only have to fill out one form instead of multiple applications.

Home » All » Student Loans » Subsidized vs. Unsubsidized Student Loans: Know the Difference. But, we also want you to follow these content guidelines. The comments or responses that Credible posts under its official account are not provided, reviewed or endorsed by any of the financial institutions unless specifically stated otherwise in the response.

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Advertiser Disclosure. With Direct Subsidized Loans , the U. You can usually borrow only a small amount in subsidized loans to pay for college. Direct Unsubsidized Loans: Unsubsidized loans are available to any student regardless of their financial need.