By Ben Luthi
Edited by Michelle TipswordWhat Is an Unsubsidized Loan?
Quick Answer
An unsubsidized loan is a type of student loan where the borrower is responsible for interest that accrues, even while enrolled in school. They’re available to undergraduate and graduate students, regardless of need.
An unsubsidized loan is a type of federal student loan available to both undergraduate and graduate students. But unlike subsidized loans, they start accruing interest as soon as the loan is disbursed.
Unsubsidized loans come with fixed interest rates and flexible repayment options, making them one of the most common ways students finance higher education. Here's what you need to know about how they work.
How Unsubsidized Student Loans Work
Unsubsidized loans are a type of federal direct loan that doesn't require undergraduate and graduate borrowers to demonstrate financial need. Interest begins accruing as soon as the loan is disbursed and continues while you're in school, during grace periods and during deferment.
If you don't pay the accrued interest before repayment begins after graduation, it gets added to your loan's principal balance through a process called capitalization. That means you'll end up paying interest on a larger amount.
Your school determines how much you can borrow based on your year in school, dependency status and the cost of attendance minus other financial aid you receive. The annual and aggregate (total combined) borrowing limits for unsubsidized loans are set by the federal government:
| Year | Dependent Students | Independent Students |
|---|---|---|
| First-year undergraduate | $5,500 | $9,500 |
| Second-year undergraduate | $6,500 | $10,500 |
| Third-year undergraduate and beyond | $7,500 | $12,500 |
| Graduate or professional students | N/A | $20,500 |
| Aggregate limit | $31,000 | $57,500 (undergrad) / $138,500 (graduate) |
Source: Federal Student Aid website
Note: The One Big Beautiful Bill Act, signed into law in July 2025, introduces new aggregate borrowing limits for graduate and professional students effective July 1, 2026. Graduate students will be subject to a $100,000 aggregate limit, while students in designated professional programs will have a $50,000 annual limit and a $200,000 aggregate limit. The law also eliminates the Graduate PLUS loan program for new borrowers.
Learn more: How to Get a Student Loan
Pros and Cons of Unsubsidized Loans
Before taking on unsubsidized student loans, it's important to weigh the benefits and drawbacks, especially if you're also offered subsidized loans. Here's what to keep in mind.
Pros
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Broad eligibility: You don't need to demonstrate financial need, undergo a credit check or get a cosigner to qualify, and both undergraduate and graduate students are eligible.
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Higher borrowing limits: Annual and aggregate limits are higher than those for subsidized loans alone, especially for independent students.
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Favorable loan terms: Interest rates are fixed for the life of the loan, and borrowers can choose from several federal repayment plans, including income-driven options that cap payments based on earnings.
Cons
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Interest accrues immediately: Because the government doesn't cover interest at any point, it starts building from day one. If unpaid, that interest capitalizes and increases your total loan cost.
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Borrowing limits may fall short: Federal loan limits may not cover your full cost of attendance, potentially requiring you to supplement with private loans.
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Origination fee: A fee of 1.057% is deducted from each disbursement, so you receive slightly less than the full loan amount.
Learn more: Should I Take Out Unsubsidized Student Loans?
Unsubsidized vs. Subsidized Student Loans
Both subsidized loans and unsubsidized loans are federal direct loans with fixed interest rates and similar repayment options, but they're distinct in a few key ways. Here's how they compare:
| Subsidized | Unsubsidized | |
|---|---|---|
| Eligible borrowers | Undergraduate students | Undergraduate and graduate students |
| Financial need required | Yes | No |
| Credit check required | No | No |
| Interest | Government pays interest while you're in school, and also during grace periods and future deferments; you pay interest in repayment | You're solely responsible for paying interest for the life of the loan |
| Interest rates | 6.39% | 6.39% (undergraduate) / 7.94% (graduate) |
The interest rate for both subsidized and unsubsidized undergraduate loans is the same in any given year. The difference is that subsidized borrowers don't have to worry about interest piling up while they're in school.
Learn more: Subsidized vs. Unsubsidized Student Loans: What's the Difference?
How to Apply for Unsubsidized Student Loans
Applying for an unsubsidized loan is a straightforward process. Here are the steps:
- Complete the FAFSA. Fill out the Free Application for Federal Student Aid (FAFSA) to determine your eligibility for federal loans, grants and work-study. Submit it by your school's deadline.
- Review your financial aid award letter. Your school will send a financial aid award letter outlining the types and amounts of aid you qualify for, including both subsidized and unsubsidized loans. You don't have to accept the full amount offered.
- Complete entrance counseling and sign the promissory note. First-time federal loan borrowers are required to complete online entrance counseling and sign a Master Promissory Note, which is your legal agreement to repay the loan.
- Receive your funds. Your school will apply the loan funds to tuition, fees and on-campus housing costs first. If there's money left over after those charges are covered, the remaining balance is sent to you to use for other education-related expenses.
To qualify, you must be a U.S. citizen or eligible noncitizen, be enrolled at least half time at an eligible institution, maintain satisfactory academic progress and not be in default on any existing federal student loans.
Learn more: How Can Student Loans Affect My Credit?
Frequently Asked Questions
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About the author
Ben Luthi
Ben Luthi has worked in financial planning, banking and auto finance, and writes about all aspects of money. His work has appeared in Time, Success, USA Today, Credit Karma, NerdWallet, Wirecutter and more.
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