The Core Difference Is Who Pays the Interest
Both loan types are federal Direct Loans, both are borrowed in the student's name, and both carry a fixed interest rate set by Congress. The difference is who pays the interest while you are still in school.
With a Direct Subsidized Loan, the federal government pays the interest while you are enrolled at least half time, during your six-month grace period after leaving school, and during any approved period of deferment. With a Direct Unsubsidized Loan, interest begins accruing on the day the loan is disbursed and it is your responsibility for the entire life of the loan.
Why it matters in dollars
Who Can Get Each Type
Direct Subsidized Loans are limited to undergraduate students who demonstrate financial need, as determined by the FAFSA. Because eligibility is need-based, not every undergraduate is offered subsidized loans, and those who are offered them usually receive less than their full annual limit in subsidized form.
Direct Unsubsidized Loans are not need-based. They are available to undergraduate, graduate, and professional students who meet general eligibility requirements. Graduate and professional students are not eligible for subsidized loans at all.
How to Tell Which Ones You Have Been Offered
Your financial aid offer lists each loan by name. Look for the words Subsidized and Unsubsidized rather than a single combined loan figure. If your offer shows one number for federal loans, ask your financial aid office for the breakdown, because you have the right to accept part of an offer rather than all of it.
You can also confirm what you have already borrowed by logging in to your account at studentaid.gov, which lists every federal loan in your name, its type, its balance, and its servicer.
How to Sequence What You Accept
Accept free money first: grants, scholarships, and awards. Then accept subsidized loans, up to the full amount offered. Then accept unsubsidized loans only in the amount you actually need. Then, if a gap still remains, consider other financing.
If you accept unsubsidized loans, consider making interest-only payments while enrolled if you can afford them. Doing so prevents capitalization and can save more than the payments themselves cost, because it stops interest from being added to your principal.
- ✓Grants, scholarships, and awards you never repay
- ✓Direct Subsidized Loans, up to the full amount offered
- ✓Direct Unsubsidized Loans, in the amount you actually need
- ✓A private education loan, only for the gap that remains
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Get Notified at Launch →Frequently Asked Questions
What is the difference between a subsidized and an unsubsidized student loan?
With a Direct Subsidized Loan, the federal government pays the interest while you are enrolled at least half time, during your six-month grace period, and during approved deferment. With a Direct Unsubsidized Loan, interest accrues from the day the loan is disbursed and you are responsible for all of it.
Who is eligible for subsidized loans?
Direct Subsidized Loans are available only to undergraduate students who demonstrate financial need based on their FAFSA results. Graduate and professional students are not eligible for subsidized loans and can borrow only Direct Unsubsidized Loans.
Should I accept subsidized or unsubsidized loans first?
Accept subsidized loans first. Because the government pays the interest while you are enrolled, a subsidized loan costs you less than an unsubsidized loan of the same amount at the same rate. Accept the full subsidized amount you are offered before accepting any unsubsidized amount.
What is interest capitalization on an unsubsidized loan?
Capitalization is when unpaid accrued interest is added to your principal balance. After that happens, you pay interest on a larger principal, so you pay interest on interest. Making even small interest-only payments while you are enrolled prevents capitalization and reduces what you repay overall.
LoanAmerica® is not a lender and does not make credit decisions. All loans will be underwritten, approved, and funded by a participating lending partner bank. Loan products are not yet available. Information on this site is for general informational purposes only and does not constitute an offer to lend, a solicitation, or a commitment to provide financing. When available, loans will be subject to credit approval, school eligibility, enrollment verification, and program qualification. Disbursements to institutions run on a weekly cycle; timing is not guaranteed and may vary. This content does not constitute legal, financial, or tax advice. For information about existing federal student loans, contact your servicer or visit studentaid.gov.