Brianna McGurran is the Loans Analyst for Forbes Advisor. 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. As spokesperson, she also con.
Brianna McGurran is the Loans Analyst for Forbes Advisor. 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. As spokesperson, she also con.
Written ByBrianna McGurran is the Loans Analyst for Forbes Advisor. 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. As spokesperson, she also con.
Brianna McGurran is the Loans Analyst for Forbes Advisor. 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. As spokesperson, she also con.
Updated: Feb 4, 2021, 12:08pm
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If you need student loans to pay for school, the first loan types you should consider are federal direct subsidized and unsubsidized loans. They’re typically the lowest-cost student loan option, and subsidized loans in particular have the most generous repayment plans, if you qualify.
Subsidized loans are available to undergraduates who demonstrate financial need through their Free Application for Federal Student Aid, or FAFSA. Unsubsidized loans are available to any undergraduate, graduate or professional student in school at least half-time. Here’s how they compare.
As the name implies, direct subsidized loans are a type of federal student loan that come with a subsidy for borrowers, making them one of the cheapest loan options available. The “direct” in their name comes from the William D. Ford Federal Direct Loan Program, the U.S. Department of Education initiative that makes these loans available. You may also see direct loans referred to by their old name, Stafford loans.
As soon as you take out a subsidized loan, interest starts accruing, but the government pays it on your behalf. As is true for most federal student loans, you are not required to make any payments—on interest or principal—while in school or for six months after leaving school. That means that on a subsidized loan, there will be no interest to add to the principal when those six months are up, so you’ll only repay the original amount you borrowed.
The government covers the interest on a subsidized loan during the following periods:
Interest will accrue, however, during periods of forbearance, a different type of payment postponement. Also, due to a brief change in the congressional budget made in 2012, borrowers who took out direct subsidized loans between July 1, 2012 and July 1, 2014 must pay the interest that accrues during their grace period. Interest that doesn’t qualify for the government subsidy will be added to the principal amount.
Unlike subsidized loans, unsubsidized loans do not come with an interest subsidy. These loans accrue interest at all times, which the borrower must eventually pay. But, similar to subsidized loans, you don’t have to start paying off unsubsidized loans until after your grace period ends. At that time, interest that has accrued will be capitalized, or added to the principal balance you originally borrowed.
Unsubsidized loans are more widely available than subsidized loans. You don’t need to demonstrate financial need as a result of the information you provided on the FAFSA. You can also get them as a graduate or professional student.
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.
The amount you can borrow depends on two factors: your year in school and whether you’re financially independent from your parents. That’s determined by a set of questions on the FAFSA.
Both direct subsidized and unsubsidized loans have relatively low annual loan limits. PLUS loans and many private student loans, on the other hand, let you borrow up to the school’s total cost—which includes tuition, fees, room, board, books, transportation and other expenses—minus other financial aid you’ve gotten.
If you’re an independent student or a dependent undergraduate student whose parents didn’t pass the credit check required to get PLUS loans, you can take out a higher amount of unsubsidized loans.
You or your parent won’t pass the PLUS loan credit check if you have more than about $2,000 in debt that’s at least 90 days delinquent, or if you had a bankruptcy, foreclosure or certain other negative marks on your credit report in the past five years. 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.S. Department of Education.
Here’s how the subsidized and unsubsidized borrowing maximums break down:
First-year undergraduateTotal subsidized and unsubsidized loan limit: $5,500
Subsidized loan limit within total: $3,500
Total subsidized and unsubsidized loan limit: $9,500
Subsidized loan limit within total: $3,500
Total subsidized and unsubsidized loan limit: $6,500
Subsidized loan limit within total: $4,500
Total subsidized and unsubsidized loan limit: $10,500
Subsidized loan limit within total: $4,500
Total subsidized and unsubsidized loan limit: $7,500
Subsidized loan limit within total: $5,500
Total subsidized and unsubsidized loan limit: $12,500
Subsidized loan limit within total: $5,500
Total subsidized and unsubsidized loan limit: $31,000
Subsidized loan limit within total: $23,000
Total subsidized and unsubsidized loan limit for undergraduates: $57,500
Subsidized loan limit within total: $23,000
Total subsidized and unsubsidized loan limit for graduate and professional students: $138,500 (includes undergraduate study)
Subsidized loan limit within total: $65,500 (includes undergraduate study)
It’s possible to get student loans for more than four years of study, as long as you maintain “satisfactory academic progress,” as defined by your school. That usually means taking a certain number of credits each semester or maintaining a certain GPA. If you don’t meet these guidelines, you could lose your eligibility for federal student aid.
There are some substantial differences between federal direct subsidized and unsubsidized loans. But both are still a better bet than PLUS loans or private loans in most cases since they’re less expensive and don’t require a credit check.
