Student Loans

What Is an Unsubsidized Loan?

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An unsubsidized loan is a federal loan for undergraduate college students who are still in school, and need for help to pay for tuition and related expenses.

To qualify for an unsubsidized loan, or direct unsubsidized loan, you first need to visit and complete the Free Application for Federal Student Aid (FAFSA). Applying for the FAFSA is free and if you qualify for an unsubsidized loan your school will notify you.

More than 20 million FAFSA applications are submitted each year resulting in more than $120 billion in federal grants, loans and work-study funds to help students pay for school, according to the Department of Education.

Unsubsidized vs. Subsidized Loans

The difference between an unsubsidized loan and a subsidized loan is that the borrower is responsible for paying the interest on an unsubsidized loan while the student is in school—provided the student is attending school at least half-time—and for the first six months after graduating (a grace period), and during a deferment period. (In a subsidized loan, the U.S. Department of Education pays the interest while the student is in school.)

If you decide to take out a private student loan you will pay all the interest even while you are in school as well. If you decide not pay the interest while you are in school, that interest will accumulate over time during a grace or deferment period and be added to the balance of your loan.

Unsubsidized Loan Benefits

The main benefit of an unsubsidized student loan is that they are available to both undergraduate and graduate students, and there is no requirement to prove there is a financial need for the loan. Students are also able to borrow more money with an unsubsidized loan as the loan limit can have a maximum amount of $31,000.

The Drawbacks of Unsubsidized Loans

The downsides of an unsubsidized loan are that you are responsible for paying the interest on the loan starting the first day you receive the loan. If you can't make the payments on the loan, that interest is added to the total amount, and any interest that goes unpaid will slowly build over time.

Another downside that comes with unsubsidized loans is that you are taking on debt. When you take on debt you must accept the risks that come with that decision. One of those risks can be defaulting on the loan.

In the case of a federal loan, the government could garnish your wages up to 15% of your income or take your income tax refund as payment. With federal student loans, there is no statute of limitation, and they are generally non-dischargeable in bankruptcy.

How Much Can I Borrow With an Unsubsidized Loan?

The amount that you can borrow with an unsubsidized loan is determined by your school and that amount cannot exceed your financial need. The amount that you are allowed to borrow each year also depends on what year you are in school and your dependency status.

The following chart shows the annual and aggregate limits for unsubsidized loans as determined by the U.S. Department of Education.

YearDependent StudentsIndependent Students
First-Year Undergraduate Annual Loan Limit$5,500$3,500
Second-Year Undergraduate Annual Loan Limit$6,500$4,500
Third-Year Undergraduate and Beyond Annual Loan Limit$7,500$5,500
Graduate Students Annual Loan LimitNot Applicable $20,500
Unsubsidized Aggregate Loan Limit$31,000 $57,500 (undergrads)
$138,500 (grads)

How to Qualify for an Unsubsidized Student Loan

To qualify you must be meet the following guidelines:

  • Be a U.S. citizen, national or a permanent resident.
  • Be enrolled at least half-time in an accredited institution.
  • Never have defaulted or owe a refund to any previous student loan or aid.
  • Stay in good academic standing.

What Are the Interest Rates for an Unsubsidized Loan?

The interest rate for direct unsubsidized student loans is 4.45% for undergraduates and 6% for graduate students on loans that were disbursed after July 1, 2017, and before July 1, 2018.

Are There Fees for an Unsubsidized Loan?

Yes, there is a fee for an unsubsidized loan, which is a percentage of the loan amount and is deducted from each loan payout. That percentage will vary depending on when the loan is first paid out. The unsubsidized loan fee is 1.066% for loans disbursed after Oct. 1, 2017, and before Oct. 1, 2018.

The average student loan debt is $34,000 according to Experian. Before you decide to take out a loan for school you should make sure that you read about student loans and understand the fine print, as well as the biggest mistakes people make and how to avoid them.