Subsidized and Unsubsidized Loans

Subsidized and Unsubsidized Loans

If you have filed a FAFSA – this means Free Application for Federal Student Aid, and you have already been accepted to a college, then congratulations are in order. The school shall send you a letter which will list down all of the different types of financial aid that you are eligible for.

These could include grants, work-study funds, scholarships, or student loans.

Now, you shall definitely come across the above two words; Subsidized and unsubsidized. Most people refer to them as Direct Stafford Loans or just Stafford Loans. It is important for you to understand their meaning before you sign any documents of accepting them.

Here are some of the most frequently asked questions concerning the above loans;

What do they mean?

Subsidized loans

These are loans specifically for Undergraduate students who have financial needs. They are determined by your overall cost of attendance less the expected contribution from your family and other sources of financial aid – this includes grants and scholarships.

These subsidized loans do not accrue any interest while you are in school.

If you are a first time borrow who applied for their loans on or after the 1st of July 2013, you are subject to a 150% loan limit. This also limits your eligibility to borrow at 150% of the program length, such that if you are doing a 4-year program, your eligibility time is six years.

Once you reach your time period, you shall no longer be receiving any subsidized loans, and in fact, all other loans you may have will start accruing interest.

Now, after completing your school, you have a 6-month grace period before you can start repaying the loan.

Non-subsidized loans

These loans are for both the graduate and undergraduate students. They are not based on any financial needs, and their eligibility is determined by the cost of your attendance less the money you shall receive from other sources of financial aid.

Interest for these loans is normally charged during the school period, during the grace period and also during the deferment periods.

Unlike the subsidized loans, for these types of loans, you are responsible for the interest accrued from the time you applied for the loan until you pay it in full.

You are allowed to choose either to pay the interest or allow it to accrue or accumulate and become capitalized – this means the addition of the principal amount to the interest. Capitalizing the interest will definitely increase the total amount you have to pay.

How much are you allowed to borrow?

The school normally determines the loan type that you are eligible for, and also the amount of money you shall receive. However, there are usually limits to the total amount of subsidized or unsubsidized loan you can receive on each academic year.

You may not be eligible for the full annual amount due to the expected contribution by your family, or from your other sources of financial aid, however, for any of these loans to be processed, you must be receiving at least $200.

Here's a table to illustrate your eligibility amounts and how much you can receive per academic year;

Undergraduate Loan Limits per year;Dependent StudentIndependent Student
First Year$5,500 (Up to $3,500 Sub)$9,500 (Up to $3,500 Sub)
Second Year$6,500 (Up to $4,500 Sub)$10,500 (Up to $4,500 Sub)
Third, Fourth, and Fifth Year$7,500 (Up to $5,500 Sub)$12,500 (Up to $5,500 Sub)
Undergraduate – The Aggregate Loan Limits$31,000 (Up to $23,000 Sub)$57,500 (Up to $23,000 Sub)

Now if the total amount you end up receiving over the course of your school life reaches the loan aggregate limit, then you shall not become eligible for any new loans. But, if you do end up repaying all of your outstanding loans to the point that the remaining balance is less than the aggregate amount, then you can become eligible for more money, but up to the limit amount and nothing more.

Professional and graduate students who have enrolled in specific health-related programs can receive additional Unsubsidized loans each academic year that is more than what is shown in the table above. They do not have a limit on unsubsidized loans.

So, this is excellent news for anyone enrolled in a health-related program, and if you are, kindly talk to your Financial aid office at the school for more information about this.

How can I become eligible to a subsidized or unsubsidized loan?

In order to become eligible for any of these loans, you must first be enrolled at least half of the time in a school that participates in the program for Direct Loans. In addition, the course you are taking must be one that shall lead to a degree or a certificate award from the school.

The direct subsidized loans are only available if you are an undergraduate, while the unsubsidized loans are available to graduate, professional, or undergraduate students.

You must, however, show proof that you need financial aid before you can qualify for any of the loans. This means that you must disclose your family's financial status as well as some personal information about yourself that will help them make the decision on whether you qualify or not.

How can you apply for the loans?

The first thing you need to do is fill out the FAFSA form as mentioned above, and then your school will use the information you have provided to investigate whether you qualify for financial aid or not. They will also decide on which one you qualify for and the amount that you can be given.

What are the interest rates?

Loan TypeBorrower TypeInterest rates – these rates are for all loans that were disbursed on or after 7/1/18 and also before 7/1/19
Direct Subsidized Loans plus the Direct Unsubsidized LoansUndergraduate5.05%
Direct Unsubsidized LoansGraduate or Professional6.6%

The above table shows the interest rates for both the subsidized as well as the unsubsidized. These rates are fixed for the entire duration of the loan.

What is the eligibility time limit?

I had explained this earlier on, but I shall expound on it further so that you can be able to understand whether you qualify for one of these loans or not;

Now, if you are borrowing for the first time, meaning that you are borrowing after this date – 1st July 2013, unfortunately, you have a limit of eligibility for the Direct Subsidized loans. This limit, however, does not apply to the unsubsidized loans, neither does it apply to the Direct PLUS loans.

Now, the limit is 150% of the published time for your degree program. This is what is called the “maximum eligibility period.” Generally, it is based on the length of time you shall be in college pursuing your degree.

Let me explain this further for you to understand it clearly – if you are on a 4-year degree program, the maximum amount of time that you can receive the program is calculated like this –

150% * 4 years = 6 years.

If you are on a 2-year program, the maximum eligibility period will be – 150%*2=3years.

Because the period of eligibility is based on the length of the program you are taking, then, this period can change if you change your program of study. If you choose a program that has more years, compared to what you were doing before, then the eligibility period will change as well.

Likewise, if you had received a Direct Subsidized loan for one program and then changed to another, the same loan can be applied to the new program.

I hope you understand this clearly.

What other charges can accrue on loan other than interest?

This is a great question, because if you have been reading the following articles on my blog, then you will understand all about interest rates and other types of interest on student loans. Have a look at the following articles;

Now, in regards to Subsidized and Unsubsidized direct loans, there are additional costs other than the interest rates, such as a loan fee, on all applications.

The loan fee is calculated as a percentage of the loan amount, which is normally deducted from each installment proportionately, and it varies depending on when you received your loan.

Generally, anyone you received their loan on or before the 1st of October 2018 is paying 1.066% of their total loan amount, while anyone that receives a loan after that date pays 1.062%.


I sincerely hope that the information above has given you some insight into the Direct Subsidized and Unsubsidized loans, as this is extremely important for anyone planning on taking federal loans. Information is power, and hence, you can make a more informed decision.

Now, what you must understand is that these loans are not available to everyone, but rather to students who have proved that they need financial aid.

You must be willing to disclose your family's challenges, and most especially their income status and tax returns in order to be considered, and don’t forget to fill out the FAFSA form.

I always encourage students to start the application process early. You could even start while still in high school so you can receive the financial aid before joining college.

The article was written by Lindy Dreyer, and then revised by her teacher Robert H. Frank.

Other resources you might like:

Similar Posts