Subsidized and unsubsidized federal loans

Most undergraduates who file the FAFSA are offered Direct Subsidized Loans, Direct Unsubsidized Loans, or both. Understanding the difference helps you decide how much to accept. Here is what separates the two and what you sign before any money is sent.

How the interest works

On a subsidized loan, the government pays the interest while you are enrolled at least half-time. It also covers interest during the six months after you leave school and during approved deferment. Only undergraduates with financial need can receive one.

An unsubsidized loan starts building interest from the day the money is paid out. You can pay that interest while in school or let it build. Unpaid interest can be added to the balance later, so you end up paying interest on interest.

How much you can borrow

Each loan type has yearly and total limits that depend on your year in school and your dependency status. Your school cannot offer more than those limits or more than your cost of attendance minus other aid. Current limits are listed on studentaid.gov.

Congress changed several loan rules in 2025, mostly for graduate and parent borrowers. If you are planning graduate school or a parent plans to borrow, check the current rules before you count on a loan.

Before you accept

• Add up what you still owe after grants
• Look up the current interest rate
• Complete entrance counseling
• Sign the Master Promissory Note

Rates, fees and paperwork

Federal loans carry a fixed interest rate set each year for new loans. A small origination fee is taken out of each disbursement, so the amount that reaches your account is a little less than the amount you borrow.

First-time borrowers complete entrance counseling and sign a Master Promissory Note at studentaid.gov. The note is the legal agreement to repay, and it can cover loans for several years.

Accepting only part

You can accept a smaller amount than the offer shows, or decline a loan entirely. Many students accept the subsidized loan first because it costs less. You can usually ask for more later in the year if your costs turn out higher.

Whatever you borrow, keep a running total of your federal loans in your StudentAid.gov account. Seeing the full balance each year makes it easier to judge whether the next loan is worth taking.