College  |  May 12, 2023  |  Kiley Thompson

Subsidized vs unsubsidized student loans: What’s the difference?

What you'll learn
  • What types of student loans exist
  • The difference between federal subsidized and unsubsidized student loans
  • The pros and cons of unsubsidized and subsidized loans

There are many types of student loans out there—and sometimes you may not be sure what you’re actually eligible for until you receive financial aid offers from individual schools. Keep these definitions in mind from the beginning and you may be able to save money on your loans over the long term.

What kinds of student loans are there?

Federal student loans are made by the government; you need to file a FAFSA® to be eligible for them. Federal loans have a standard interest rate, set by the government, and can offer more flexibility than private loans with different repayment options. Federal direct loans are sometimes referred to as “Stafford” loans—they’re the same thing.


Types of federal student loans:

  • Direct subsidized loans
  • Direct unsubsidized loans
  • Direct PLUS Loans, which include Grad PLUS Loans for graduate and professional students, and Parent PLUS Loans, which are lent to a student’s parents. PLUS Loans are the only federal loans that are credit-based.

Private student loans are made by banks and other financial institutions. They’re credit-based, so you and/or your cosigner need to have good credit. You apply directly from the loan issuer to request a loan. Private loans often offer fixed or variable interest rates (which can differ from one issuer to another).

Need money for college?

Consider a Sallie Mae® private student loan

  • Available for online or on-campus study
  • Competitive fixed and variable rates
  • No origination fee or prepayment penalty
  • 97% of undergraduate students who’ve been approved were approved again when they returned with a cosigner the following yearfootnote 1

What’s the difference between a federal subsidized and unsubsidized student loan?

Both loans have the same interest rates, and interest accrues (grows) on both from the moment your school gets the money. The difference is who pays the interest that accrues (grows) while you’re in school—you or the government.

Subsidized loans: Federal subsidized loans are based on financial need (as determined by the FAFSA®). In effect, the government is paying the interest for you while you’re in school (if you’re enrolled at least half-time), during your grace period, and if you need a loan deferment. When you leave school, the government stops paying your loans’ interest. Your repayment amount includes the original amount of the loan and the interest that starts to accrue (grow) from that moment. Subsidized loans are only available to undergraduates, and there’s usually a lower loan limit than with an unsubsidized one.

Unsubsidized loans: With an unsubsidized loan, you are responsible for the interest from the moment the loan money is disbursed (sent) to your school. Unlike a subsidized loan, the federal government will not help with any of it. Unsubsidized loans are available to both undergrads and graduate students. When you start paying back your unsubsidized loans, your repayment amount will include the amount borrowed and the interest that has accrued.

So why would anyone ever take out an unsubsidized loan?

Both types of federal loans are only available when you apply for aid through the Free Application for Federal Student Aid (FAFSA®).

If you qualify for a subsidized loan, you should generally take that financial aid, since it’ll save you money. If you don’t qualify, however, there are two plusses to getting an unsubsidized loan:

-   You don’t have to demonstrate need for an unsubsidized student loan, so you can usually borrow more money.
-   You can use the funds to pay for a graduate degree.

Generally, you’ll find out which types of loans you’re eligible for when you receive your school’s financial aid offer.

The FAFSA® is key

If you need to take out a loan to pay for college, know that you’re not alone. College is expensive and no one expects you to have planned for all contingencies. Just be sure to file the FAFSA®—it’s the key to all federal financial aid, including college scholarships, college grants, and your eligibility for subsidized and unsubsidized student loans.

footnote Sallie Mae does not provide, and these materials are not meant to convey financial, tax, or legal advice. Sallie Mae makes no claims about the accuracy or adequacy of this information. These materials may not reflect Sallie Mae’s view or endorsement. Consult your own financial advisor, tax advisor, or attorney about your specific circumstances. Reproduction without explicit permission is prohibited.

footnote External links and third-party references are provided for informational purposes only. Sallie Mae cannot guarantee the accuracy of the information provided by any third parties and assumes no responsibility for any errors or omissions contained therein. Any copyrights, trademarks, and/or service marks used in these materials are the property of their respective owners.

footnote 1. Sallie Mae loans cover enrollment periods of up to 12 months. Students must apply for a new loan each school year. This approval percentage is based on students who were approved for a Sallie Mae undergraduate loan with a cosigner in the 2020/21 school year and were approved for another Sallie Mae undergraduate loan when they returned with the same or new cosigner in 2021/22. It does not include the denied applications of students who were ultimately approved in 2021/22.