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

Direct Loans, which were previously referred to as Direct Stafford Loans, are the most well-known type of federal student loan. They are offered by the government, which means that the US Department of Education is the lender. There are two types of Direct Loans that undergraduate students can take out: Direct Subsidized Loans and Direct Unsubsidized Loans.

Direct Subsidized vs Direct Unsubsidized Loans

Sometimes known as Direct Stafford Loans, Direct Subsidized and Unsubsidized Loans are available to undergraduate students enrolled at least half-time at a participating college.

Direct Subsidized Loans are available to undergraduate students based on financial need, which is determined by your family’s income as reported on the FAFSA. Direct Unsubsidized Loans are available to both undergraduate and graduate students and are not based on financial need.

How do I apply?

To determine your eligibility for any federal student loans, you’ll need to first complete the Free Application for Federal Student Aid (FAFSA)–there is no credit check required. The FAFSA must be completed each year you are in school and is available every year on October 1. Fill it out as early as possible, as some aid may be given out on a first-come, first-served basis.

What are the interest rates?

Direct Loans come with fixed interest rates for the life of the loan. For subsidized loans, the government pays the interest that accrues while you are enrolled in school at least half-time, during your six-month grace period, and during periods of deferment. For unsubsidized loans, you are responsible for paying the interest for the entire life of the loan. Making payments during school and the grace period can help reduce the amount of interest you'll pay over the life of the loan. Interest rates for new loans can change in July from one school year to the next.

Are there any fees?

Direct Loans have origination fees, which are a percentage of the total loan amount and deducted from each disbursement. Like interest rates, origination fees for new loans can change in October from one year to the next.

How much can I borrow?

There are limits to how much you can borrow annually and in total over your academic career. The limits vary based on whether you are a dependent or independent student and generally increase depending on your year in school.

When do I have to make payments?

Direct Loans come with in-school deferment, so you aren’t required to make payments as long as you’re enrolled in school at least half-time. There is also a six-month grace period that begins when you graduate or drop below half-time enrollment before repayment begins. You can choose to make payments during school and your grace period, which will help reduce the overall cost of your loan.

You can choose from several repayment plan options that range from 10 to 25 years, depending on amount borrowed and loan type.

^{FAFSA® is a registered trademark of the US Department of Education and is not affiliated with Discover® Student Loans.}