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Student Loans

What Is an Unsubsidized Student Loan?

Student loans come in many different forms, and it can get a little confusing when comparing all of your financing options. Loans for higher education fall into two major categories: federal loans from the government and private loans from financial institutions.

An unsubsidized loan is a federal loan for undergraduates who are still in school and need help paying for tuition and other college expenses.

What Is the Difference Between Subsidized and Unsubsidized Loans?

Federal student loans, unlike private loans, are either subsidized or unsubsidized by the federal government. So what's the difference?

Subsidized loans are available to undergraduate students only, and the government reserves them for students who demonstrate financial need. The U.S. Department of Education offers the best terms on these loans, paying the interest while you're attending school at least half time, during the six-month grace period after leaving school, and during any loan deferment periods.

Unsubsidized loans, on the other hand, can be obtained by both undergraduate and graduate students and don't require demonstration of financial need. Interest accrues on unsubsidized loans while you are attending school, during the grace period and during deferment. If you do not pay the accrued interest before you must start paying back the loan, that interest gets added to the loan's total.

Pros and Cons of Unsubsidized Loans

Unsubsidized loans have several benefits and drawbacks to consider before you take one on.

Unsubsidized student loan perks include:

  • You aren't required to demonstrate financial need. This can be helpful in many situations, such as when you've reached your borrowing limit on need-based subsidized loans and still don't have enough to fully cover school costs.
  • Unlike subsidized loans, you can utilize these loans if you're a graduate or professional student.
  • You can borrow more money than with a subsidized loan.
  • Unlike private loans, you can choose from multiple federal repayment plans, giving you more flexibility.
  • Additionally, while private loans require credit checks, unsubsidized federal loans (and subsidized federal loans) don't check credit.

But there are some downsides to consider:

  • Interest starts accruing immediately. If you or your parents can't make interest payments while you're in school, that accrued interest is added to your loan's principal, which increases the cost of borrowing. For that reason, you should try to pay all the interest on these loans before you leave school.
  • There are annual limits on how much you can borrow through federal loans—both subsidized and unsubsidized—so you may not be able to borrow as much as you need. In this case, you may be able to supplement with private loans.

How Much Can I Borrow With an Unsubsidized Loan?

The amount you can borrow with an unsubsidized student loan is determined by your school and is based on your year in school and dependency status.

The following chart shows the annual and aggregate limits for unsubsidized loans as determined by the federal government.

Borrowing Limits for Unsubsidized Loans
YearDependent StudentsIndependent 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 studentNot Applicable$20,500
Unsubsidized aggregate loan limit$31,000$57,500 (undergrads)
$138,500 (grads)

How to Apply For an Unsubsidized Student Loan

First, make sure you meet the following criteria to qualify for an unsubsidized student loan. You must:

  • Be a U.S. citizen or national, or a permanent resident
  • Be enrolled on at a least half-time basis at an accredited institution
  • Have no loan defaults or owe a refund to any previous student loan or aid
  • Stay in good academic standing

Here's how to apply:

  1. Fill out the Free Application for Federal Student Aid (FAFSA). The government and colleges use this form to determine financial aid packages. Make sure you submit it by the annual deadline.
  2. Go over your financial aid letter. You will receive a financial aid award letter from your school's financial aid office listing the loan options you qualify for and explaining how to accept them. You may be approved for both subsidized and unsubsidized loans; you can then determine how much of the approved amount you will request (you do not have to take the entire amount you are offered if you don't need it).
  3. Complete the paperwork and requirements to receive your loan. This entails signing a promissory note (the loan agreement). If it's your first time receiving a federal loan, you'll have to complete online entrance counseling to make sure you understand your responsibilities and obligations as a borrower.
  4. Receive your loan(s). When your loans come in, your school will put them toward your tuition, room and board (if you live on campus), or any other school fees. If there's any remaining money, it will be given to you.

Are There Fees for an Unsubsidized Loan?

Yes, unsubsidized loans come with a percentage-based loan fee that's deducted proportionately from each loan disbursement you receive. The fee rate depends on when you took out the loan: If it was first paid out on or after Oct. 1, 2019, and before Oct. 1, 2020, the loan fee is 1.059%. If the loan was first disbursed on or after Oct. 1, 2018, and before Oct. 1, 2019, the fee is 1.062%.

You'll also pay interest in exchange for the benefit of borrowing. For undergraduate unsubsidized loans, the current interest rate is 4.53%, and for graduate, 6.08%. (These rates are for loans disbursed on or after July 1, 2019, and before July 1, 2020.) Fortunately, these interest rates are fixed and stay the same for the life of the loan.

When to Start Paying Off Unsubsidized Loans

Once you graduate from school, or you drop below half-time enrollment, you'll get a six-month grace period before you're required to start repaying your unsubsidized loan. During that time, your loan servicer will provide information on repayment and will let you know when you need to begin making your payments.

Federal student loans allow you to choose from a few different repayment plans; you might be assigned to one automatically, but you can change your plan anytime for free. If you're not sure which plan would work best for you, ask your loan servicer to talk you through the options.

Regardless of which plan you pick, it's vital to start paying off your student loans as soon as possible. Even if you're not required to pay during a grace period, interest still racks up, so try to at least make payments to cover interest to prevent your debt from growing higher.

Whenever you can, pay more than the minimum you owe each month. This will lower your balance faster over time. If you overpay, the loan servicer may apply it to the next month's payment, so you may need to explicitly ask them to apply it to the current month's payment.

Lastly, if you have multiple student loans, make note of the ones with the highest balance and the steepest interest rate. If you're able to pay more than the minimum, put it toward those loans first since that will help you save more money over time.

Keep an Eye on Your Credit

Student loans make a lasting impact on your credit, and the ramifications can be positive or negative depending on your actions. As you enter school, it's smart to monitor your credit—which you can do for free with Experian—to get a sense of where it stands and how your student loans affect your credit. Making every payment on time will help your credit grow and improve.

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