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Federal Subsidized and Unsubsidized Direct Student Loans

Before considering any private student loan options, prospective and current students should consider federal student loans, like direct subsidized and unsubsidized loans. Federal student loans offer better interest rates and more flexible repayment options.

Federal Subsidized and Unsubsidized Direct Student Loans
Federal Subsidized and Unsubsidized
No Min. Credit Score
Loan Amount up to $65,000
Repayment starts 6 months after graduation
Tara Mastroeni
Written by:Tara Mastroeni
Real Estate and Personal Finance Expert

If you want to apply for financial aid and you’re not applying with a parent as your co-signer, direct subsidized or direct unsubsidized loans will likely be your most affordable option. Here’s a federal student loan review, including what to expect for your loan terms, repayment options, and more.

Summarized Rating

This parameter considers loan term lengths, loan limits, and loan structure optionality (fixed and variable rate offerings). For each loan type offered, each of these features was evaluated using the five-point scoring system. Then, the various scores were aggregated and averaged to establish an overall loan features score.

The Direct Subsidized Loan program gets a perfect 5.0 for Loan Features, which is attributable to its highly flexible and best-in-class term lengths and loan amounts.

Direct Subsidized and Unsubsidized Loans Pros and Cons

Even though federal direct loans are the best government student loans, they do have their own advantages and disadvantages. Here’s a closer look at the pros and cons.

Affordable interest rates
Flexible repayment options
Eligible for deferment or forbearance
Charges an origination fee

What are Federal Direct Student Loans?

Federal direct student loans are a type of student loan offered by the federal government. These loans should not be confused with direct PLUS loans, which allow a parent or guardian to act as the borrower. With federal direct loans, the student is the principal borrower.

There are two types of federal student loans, subsidized and unsubsidized. While direct unsubsidized loans are available to the vast majority of students, the subsidized loans are only given to those borrowers with the greatest financial need. The main difference is interest accrues later on direct subsidized loans in order to make them more affordable.

Direct Subsidized and Unsubsidized Loan Features

One of the main advantages of a direct subsidized loan is that it’s very flexible in terms of the loan term and your repayment options. However, there are limits to how much you can borrow in a direct subsidized loan and the limits are fairly low compared to current education costs.

Repayment options include Standard Repayment, Extended Repayment, Pay As You Earn. Revised Pay As You Earn, Income-Based Repayment, Income- Contingent Repayment, and Income-Sensitive Repayment plans

Loan terms 10-25 years, depending on repayment plan
Repayment period Typically starts six months after graduation
Loan amount Undergraduate students can borrow a total of $23,000 in subsidized loans and graduate or professional students may borrow a total of $65,000.
Loan Structure Flexibility Multiple repayment options

Direct Subsidized and Unsubsidized Loan Interest Rates and Fees

Direct subsidized and unsubsidized loans come with fairly-affordable fixed interest rates, so you won’t have to worry about your rate changing over time. Still, while there are fewer fees than you might find with some other lenders, you’ll still have to prepare for an origination fee when you first take out the loan and late fees on any late payments.

Borrowing/Origination Fees 1.057% -1.059%, depending on loan disbursement date
Prepayment Fees None
Late Payment Fees $0.06 for each dollar due in the late payment
Maintenance Fees None
Fixed Rates 4.99% - 6.54%, depending on loan type and level of study
Variable Rates None

Direct Subsidized and Unsubsidized Loan Qualification Requirement

Qualifying for a Direct Subsidized Loan Is very different than qualifying for a private student loan. Instead of basing their eligibility requirements on your financial standing, the Department of Education determines eligibility solely based on two factors: citizenship and enrollment in a participating educational institution.

Institution Type & Course Load Requirements Must be enrolled at least part-time in an institution that participates in the Direct Loan Program
Minimum Credit Score None
Minimum Income None
Maximum Debt-to-Income None
Co-signer/Joint Application Requirements None

Direct Subsidized and Unsubsidized Loan Application Process

If you’re ready to apply for federal student aid, the process is fairly similar to applying for any other loan. Once you fill out the required forms, the federal government will work with your school to determine your eligibility for aid. Check out the steps below for more information.

  1. Fill out a FAFSA form: Applying for a Federal Direct Loan starts with filling out the Free Application for Federal Student Aid, also known as a FAFSA form. This form will gather financial information, such as information about your tax return and any bank accounts.
  2. Wait for a response from your school: Based on the information included in your form, your school will determine how much federal aid you’re eligible to receive and offer you a financial aid package, which may include Direct Subsidized Loans. You can choose to accept or decline the package.
  3. Complete any additional financial aid requirements: If you choose to accept your financial aid, you may be required to complete additional steps, such as undergoing entrance counseling before you can receive the funds.
  4. Sign the promissory note: Once you’ve completed all requirements, you’ll be asked to sign the paperwork where you promise to repay the loan. After signing on the dotted line, the funds will be disbursed to your account.

Direct Subsidized and Unsubsidized Loan Perks and Bonuses

Federal direct loans come with a host of benefits that aren't available from private lenders, including:


Flexibility is what makes direct loans the best government student loans, In particular, the Department of Education offers borrowers direct loan borrowers seven different repayment options, including:

  • Standard repayment plan: Fixed payments to be paid off within ten years
  • Graduated repayment plan: Payments start low and increase every two years to allow you to pay of the loan in ten years
  • Extended repayment plan: Available if you have more than $35,000 in debt, this allows you to pay off your debt in 25 years, with fixed or graduated payments.
  • Revised Pay As You Earn repayment plan (REPAYE): Payments are recalculated every year and are equal to 10% of your discretionary income
  • Pay As You Earn repayment plan (PAYE): Available to borrowers who received their first disbursement on or after October 1, 2011, monthly payments are calculated each year to be 10% of your discretionary income, but they can not exceed what you would pay under the standard repayment plan.
  • Income-based repayment plan (IBR): For borrowers who have high debt relative to their incomes, payments will either be equal to 10% or 15% of their discretionary income, depending on when your first loan was received.
  • Income-contingent repayment plan (ICR): Payments are either equal to 20% of your discretionary income or the amount you’d pay on a repayment plan with a fixed payment over 12 years, adjusted for your income. You’ll be expected to pay whichever is less.

In addition, direct loans are also eligible for forbearance and deferment. These loans can also be considered.


If you haven’t received a federal direct student loan before, you’ll likely be required to take entrance counseling, which is a financial education course provided by the Department of Education. Many schools require you to complete this counseling before you receive your loan disbursement.


Access to multi-channel payment functionality and mobile app availability will depend on your loan servicer.

Final Thoughts

If you need to borrow money to pay for school, exploring your federal student loan options should always be your first move. Typically, federal options, like federal direct subsidized and unsubsidized loans, offer better terms and more flexibility than you’ll find with private lenders. In particular, federal direct student loans boast lower-than-normal interest rates and a variety of different repayment options, including income-driven repayment.

 Use the information above to help you decide whether federal direct student loans are the right choice for you. Armed with this knowledge, you will be able to make a better decision about how you'll pay for your education.

Frequently Asked Questions(FAQ)

Do student loans get forgiven after 10 years?

Most student loans are not forgiven after ten years. Only loans that qualify under the Public Service Loan Forgiveness program are eligible for forgiveness after a decade and, even then, certain requirements must be met in order for your debt to be forgiven.

How long is the grace period on direct subsidized/direct unsubsidized loans?

Both direct subsidized and direct unsubsidized loans offer a six-month grace period. The six-month grace period begins once you either graduate or drop below half-time enrollment. Once the grace period ends, it’s time to start making payments on your loans.

How to get direct subsidized loans?

Your school determines your financial aid eligibility, including whether you qualify for direct unsubsidized loans. If you’d like to see if you qualify, your best bet is to fill out the Free Application for Federal Student Aid (FAFSA) form.

Who is eligible for subsidized direct loans?

Undergraduate students who demonstrate the greatest financial need are generally deemed eligible for subsidized direct loans. Eligibility for aid is determined by your expected family contribution, your year in school, your enrollment status, and the cost of enrollment at the institution you’ll be attending.

When are you required to pay back your direct subsidized or direct unsubsidized loans?

Once you graduate or drop below half-time enrollment, you’re given a six-month grace period before you need to start repaying your loans. However, if you have a direct unsubsidized loan, you have the option to start making interest payments as soon as your loan funds are disbursed.

What is the current interest rate on direct subsidized and direct unsubsidized loans?

Direct subsidized loans and direct unsubsidized loans for undergraduate students currently have a fixed interest rate of 4.99%. Graduate students, who are only eligible for unsubsidized loans, are given an interest rate of 6.54%.

What is the difference between direct subsidized and unsubsidized student loans?

The main difference between direct subsidized loans and direct unsupervised loans is the borrower’s level of financial need and when interest starts to accrue on the loan. Borrowers with greater need are given subsidized loans and aren't expected to make payments on the loan until six months after graduating or dropping below half-time enrollment. Borrowers with less need are given unsubsidized loans. For them, interest starts to accrue as soon as the loan is disbursed.

Tara Mastroeni

Tara Mastroeni

Real Estate and Personal Finance Expert

My specialty? Breaking down technical concepts in a way that's easy to understand.

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