For students who need to borrow money to pay for college, federal student loans are the most common option. In fact, federal loans account for nearly 92% of total outstanding student loans, according to the Education Data Initiative.
Federal subsidized and unsubsidized loans are student loan options available to undergraduate and graduate students. Learn about the difference between a subsidized loan vs. unsubsidized loan, who's eligible for each type of loan and how much you can borrow.
Understanding federal direct student loans
The U.S. Department of Education distributes federal student loans through the Direct Loan Program. For the 2026-2027 academic year, student borrowers have two federal Direct Loan options:
- Federal Direct Subsidized Loans: Subsidized loans are for undergraduate students with financial need.
- Federal Direct Unsubsidized Loans: Unsubsidized loans are available to undergraduate, graduate or professional students, regardless of need.
Federal Grad PLUS loans allow graduate and professional students to borrow up to the total cost of attendance. However, these won't be available to new borrowers taking out loans on or after July 1, 2026.
As federal student loans, both subsidized and unsubsidized loans offer additional borrower protections and benefits, such as grace periods and access to income-driven repayment (IDR) plans.
What are subsidized loans?
Subsidized loans are tools you can use to finance your undergraduate degree. Depending on your year in school, you can borrow $3,500 to $5,500 per year in subsidized loans. An aggregate limit of $23,000 applies for your entire undergraduate degree.
With subsidized loans, the U.S. Department of Education pays the interest for you during certain periods:
- While you're in school at least half-time
- For the length of your grace period, which is six months after you graduate, leave school or drop below half-time enrollment status
- During qualifying deferment periods
With the federal government covering your loan interest during those periods, less interest builds over the life of your loan, lowering your overall repayment cost.
What are unsubsidized loans?
Unsubsidized loans are for undergraduate, graduate or professional students. With these student loans, you're responsible for all interest that accrues, including interest that builds while you're in school.
While unsubsidized student loans have higher borrowing limits than subsidized loans, they also have higher interest rates for graduate and professional students.
Difference between subsidized and unsubsidized loans
The key differences between subsidized and unsubsidized loans have to do with who's eligible, how interest accrues and overall borrowing limits. The table below showcases the differences between these two loan types.
| Direct subsidized loan | Direct unsubsidized loan | |
| Borrower type | Undergraduate student | Undergraduate or graduate |
| Interest rate | 6.52% |
6.52% undergraduate 8.07% graduate* |
| Disbursement or origination fee | 4.288% | 4.288% |
| Annual borrowing limit | $3,500 to $5,500 per year (based on year) | $7,000 for undergraduate |
| Aggregate borrowing limit | $23,000 |
$138,500 for undergraduate students Effective July 1, 2026 aggregate limit for graduate students will be $100,000 and for professional students $200,000 |
| Interest accrual | Does not accrue while the student is in school, during the loan grace period or periods of deferment | Interest accrues from loan disbursement, and may be capitalized or added to the loan principal |
*Interest rate applies to loans disbursed between July 1, 2026 and June 30, 2027.
How to apply and qualify for federal student loans
Your eligibility for subsidized and unsubsidized loans depends on the information you submit in the Free Application for Federal Student Aid (FAFSA). Based on your financial situation, year in school and dependency status, the FAFSA will assign you a student aid index (SAI) number. Colleges use the SAI to create your financial aid package and determine how much of each type of loan you qualify for.
Consider private student loans to cover the difference
While the main difference between federal subsidized and unsubsidized loans is how interest accrues and who pays it, both types of loans come with relatively low interest rates to help you fund your education.
If you meet the maximum federal student loan limit and still need money to pay for school, private student loans from Citizens can be useful tools to help you cover the remaining balance.†