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The Federal Direct Loan program offers subsidized and unsubsidized student loans to eligible students planning to attend college, trade or vocational schools, or career training programs. Unlike subsidized loans, the government doesn’t pay the interest for you on unsubsidized loans at any time.
Undergraduates and graduate students can apply for unsubsidized loans, and financial need isn’t required. You might consider accepting unsubsidized student loans if you’ve exhausted your eligibility for subsidized loans.
Compared to other federal loan options, a few things set unsubsidized loans apart.
In this guide:
- Overview of the Direct Subsidized Loan
- Who is eligible for unsubsidized student loans?
- How much can I borrow using unsubsidized student loans?
- What is the interest rate on unsubsidized student loans?
- Applying for unsubsidized student loans
- How are unsubsidized loans disbursed?
- What is the repayment process for unsubsidized loans?
- Can you cancel an unsubsidized student loan?
- Other helpful information on unsubsidized student loans
Overview of the Direct Subsidized Loan
|Direct Unsubsidized Student Loan|
|Rate (APR)||4.99% for undergraduates|
6.54% for graduates and professionals
|Borrowing limits||Up to $7,500 per year for dependents; lifetime cap of $31,000|
Up to $20,500 per year for independents; lifetime cap of $138,500
|Repayment terms||10 to 25 years|
|Who’s responsible for interest?||The borrower is responsible at all times|
Who is eligible for unsubsidized student loans?
Unsubsidized student loans are available to undergraduate and graduate students. Financial need is not a requirement for these loans. There are, however, a few other criteria for getting an unsubsidized loan.
Generally, to qualify for unsubsidized student loans, you must:
- Be a U.S. citizen or eligible noncitizen with a valid Social Security number.
- Be enrolled in or accepted to an eligible degree or certificate program on at least a half-time basis.
- Maintain satisfactory academic progress while in school.
- Certify that you’re not in default on any federal student loans and don’t owe money on a federal student grant.
- Certify that you’ll only use federal loans for educational purposes.
- Show that you’re qualified to obtain a college or career school education.
There’s no credit check required for unsubsidized student loans, and you won’t need a cosigner. You’ll need to fill out the Free Application for Federal Student Aid (FAFSA) to apply for unsubsidized loans.
How much can I borrow using unsubsidized student loans?
Each school sets borrowing limits based on the cost of attendance and any other financial aid you’ve received.
The cost of attendance can include tuition, fees, room and board, books, supplies, transportation, loan fees, and other miscellaneous expenses. The miscellaneous category can include costs related to a disability or costs for studying abroad.
The amount you can borrow in unsubsidized student loans depends on whether you’re a dependent or independent student and your year of enrollment in school. There are annual limits and aggregate limits for unsubsidized loans.
You may be eligible for a lesser amount than the maximum annual limit, based on your dependency status and year of enrollment.
Here are the current limits on unsubsidized loans:
|Year||Dependent Students||Independent Students|
|First-year undergraduate||$5,500 (No more than $3,500 of this amount may be in subsidized loans.)||$9,500 (No more than $3,500 of this amount may be in subsidized loans.)|
|Second-year undergraduate||$6,500 (No more than $4,500 of this amount may be in subsidized loans.)||$10,500 (No more than $4,500 of this amount may be in subsidized loans.)|
|Third-year undergraduate||$7,500 (No more than $5,500 of this amount may be in subsidized loans.)||$12,500 (No more than $5,500 of this amount may be in subsidized loans.)|
|Graduate or professional||All graduate and professional students are considered independent.||$20,500 (Unsubsidized only)|
|Aggregage||$31,000 (No more than $23,000 of this amount may be in subsidized loans.)||$57,500 for undergraduates. (No more than $23,000 of this amount may be in subsidized loans.)|
$138,500 for graduate or professional students. (No more than $65,500 may be in subsidized loans.)
As you can see, how much you can borrow is significantly influenced by whether you’re an undergraduate or graduate and whether you’re dependent or independent. It’s important to note that the aggregate graduate level includes all loans received as an undergraduate, too.
What is the interest rate on unsubsidized student loans?
Unsubsidized student loans have low, fixed interest rates. Rates are set by Congress and are subject to change annually. However, this change only impacts those taking out loans for the first time. Those who’ve already taken out a loan will have the same rate throughout repayment.
Here are the current rates:
|Type of Borrower||Rate (APR)||Origination Fee|
|Graduate or Professional||6.54%||1.057%|
Interest begins accruing on unsubsidized student loans as soon as the funds are disbursed to your school.
You don’t have to make payments while in school, during the six-month grace period after graduation, or when loans are in deferment or forbearance. But the interest is always accruing during those times; the government doesn’t pay any of it on your behalf.
In that sense, unsubsidized student loans aren’t that different from private student loans. With private loans, interest begins to accrue as soon as funds are disbursed. One key difference, however, is that private student loans may offer a choice of fixed or variable rates while unsubsidized loans only have fixed rates.
Applying for unsubsidized student loans
The FAFSA is used to determine your eligibility for federal student aid. Completing this form is the first step in applying for any federal student loans, including unsubsidized loans.
You can complete the FAFSA online through the Department of Education website. If you’re filling out this form as a dependent student, you’ll need to provide financial information for yourself and your parents.
Once you submit the FAFSA, your school will use the information you have provided to determine what federal aid you’re eligible to receive, including subsidized or unsubsidized loans, federal work-study programs, and grants. You’ll receive a financial aid award letter that explains what you’re eligible for and the amount.
You’ll need to contact your school’s financial aid office to accept the aid offer. There may be additional paperwork you’ll need to complete to finalize the loan process. You can also reach out to the school to initiate an appeal of your financial aid award if you believe that it’s not enough.
How are unsubsidized loans disbursed?
Unsubsidized student loans are disbursed directly to the school. Before your loan funds can be released, you’ll need to complete entrance counseling, which you can do online. This counseling ensures that you understand what your responsibilities are toward the loan.
After you complete your entrance counseling, you’ll need to sign a Master Promissory note. Doing so means you agree to be legally bound to repay the loan. After you’ve checked off this step, loan funds can be sent to the school.
The school then applies those funds to the cost of attendance, starting with tuition and fees. If there’s money left over, the school will return it to you. You can then use that money to pay down your loan balance or apply it to your basic living expenses while in school.
If you’re a first-year student, there may be a 30-day delay before loan funds are disbursed. The 30-day period starts with your first day of enrollment. You can reach out to the school’s financial aid office to ask if this delay applies to you.
Also, note that your loan servicer might contact you after the disbursement to request more information. If they do contact you, that might be a good time to ask any questions you have about your loans.
What is the repayment process for unsubsidized loans?
Unsubsidized loans go into repayment once you graduate, drop below half-time enrollment, or leave school. You do, however, have a six-month grace period after graduation in which no payment is due. Interest will continue accruing on your loans, however.
There are several repayment plans you can choose from, including:
The loan servicer will automatically place you on the Standard repayment plan once your loans come due. If you’d like to make a different plan selection you can contact the loan servicer to make that request.
If you’re hoping to become eligible for loan forgiveness, you’ll need to enroll in an income-driven repayment option.
The repayment plan you choose will determine the length of your repayment term, which may range from 10 to 25 years. It will also determine your monthly payments for your loans.
If you’re having trouble paying your unsubsidized student loans, the Department of Education advises you to get in touch with your loan servicer. Your loan servicer can offer possible solutions, such as a deferment or forbearance period, an income-driven repayment plan, or a loan consolidation.
Can you cancel an unsubsidized student loan?
You can cancel unsubsidized student loans in part or in full before the funds are disbursed to your school. You can also cancel funds after disbursement for up to 120 days after the money was paid out. When you cancel a loan, you must return the amount received, but you won’t be charged any interest or fees.
Whether canceling loans is a good idea or not can depend on your reason for canceling. If you’re not planning to attend school, for instance, then giving back the loans might be the best option to avoid interest and fees.
If you want to cancel part of your loans because you don’t think you need all of the money, it’s important to do the math carefully. Misunderstanding how much you need to pay for school could leave you with a shortfall if you cancel your loans prematurely.
Other helpful information on unsubsidized student loans
Federal loans can be forgiven under certain circumstances. For example, if you’re pursuing a career in public service, you may be eligible for Public Service Loan Forgiveness (PSLF).
There are also situations where loans may be canceled or discharged. Teacher loan cancellation offers forgiveness for teachers working in schools that serve low-income students. Borrowers who become totally and permanently disabled may also be eligible to discharge their loans.
Getting some or all of your loan obligation forgiven could bring some much-needed financial relief. The Federal Student Aid website is an excellent resource for comparing forgiveness options. You can also read our in-depth guide to subsidized and unsubsidized loans to see how they compare.
Author: Rebecca Lake