The short answer
Direct Subsidized and Direct Unsubsidized Loans are federal student loans with the same fixed interest rate for undergraduates: 6.52 percent for loans first disbursed from July 1, 2026, through June 30, 2027. The difference is interest. On a subsidized loan, which goes only to undergraduates with financial need, the Department of Education pays the interest while you are in school at least half time, during the six-month grace period after you leave and during deferment. On an unsubsidized loan, which undergraduates and graduate students can get regardless of need, interest builds from the day the money is paid out. A dependent first-year student can borrow up to $5,500 a year, no more than $3,500 of it subsidized; the limits rise in later years and are higher for independent students. Both loans carry a 1.057 percent fee, and from 2026–27 the yearly limits shrink for students enrolled less than full time.
The difference in one table
Both loans come from the Department of Education under the Direct Loan program, both need at least half-time enrollment and both give you six months after you leave school before repayment starts. Everything that differs is in the table.
Swipe sideways to see the whole table.
| Feature | Subsidized | Unsubsidized |
|---|---|---|
| Who can get it | Undergraduates with financial need | Undergraduate, graduate and professional students; no need required |
| Interest while in school at least half time | Paid by the Department of Education | Charged to you from the day the money is paid out |
| Interest during the six-month grace period | Paid by the Department of Education | Charged to you |
| Interest during deferment | Paid by the Department of Education | Charged to you |
| Undergraduate interest rate, 2026–27 | 6.52% fixed | 6.52% fixed |
| Loan fee | 1.057% of each disbursement | 1.057% of each disbursement |
| Most you can receive | Your financial need, within the annual limit | Your cost of attendance minus other aid, within the annual limit |
What the interest difference is worth
The rate is the same, so the subsidy is the whole difference. On an unsubsidized loan, interest accrues during every period, including while you are in school. If you do not pay it as it builds, it is added to your principal when repayment begins, and from then on you pay interest on that interest too.
Example (hypothetical): one first-year loan, two ways
A first-year student borrows $3,500 at 6.52 percent. Simple interest on that amount is about $228 a year.
If the loan is subsidized, the Department of Education pays that interest through four years of school and the six-month grace period, and the student starts repayment owing $3,500.
If the loan is unsubsidized and no interest is paid along the way, about $1,027 builds up over the same four and a half years. Added to the principal, it means repayment starts on roughly $4,527, from that one year's loan alone.
That is why the order matters: accept subsidized loans before unsubsidized ones, and if you do take an unsubsidized loan, paying even part of the interest while you are in school keeps the balance from growing.
How much undergraduates can borrow
Annual limits depend on your year in school and on whether you are a dependent or independent student for financial aid. The subsidized share has the same cap for both groups; the higher total for independent students comes from extra unsubsidized eligibility.
Swipe sideways to see the whole table.
| Year in school | Dependent student | Independent student |
|---|---|---|
| First year | $5,500 ($3,500) | $9,500 ($3,500) |
| Second year | $6,500 ($4,500) | $10,500 ($4,500) |
| Third year and beyond | $7,500 ($5,500) | $12,500 ($5,500) |
| Total for undergraduate study | $31,000 ($23,000) | $57,500 ($23,000) |
A dependent student whose parents cannot get a Parent PLUS Loan can borrow up to the independent amounts. Federal Student Aid has confirmed that the 2025 law did not change these undergraduate limits. Whether you count as dependent is set by the FAFSA's own rules, which our guide to dependency status explains.
Less than full time: smaller limits from 2026–27
One new rule does reach undergraduates. Starting with the 2026–27 award year, a student enrolled less than full time has the annual limit reduced in direct proportion to how far below full time the enrollment is, rounded to the nearest percentage point. The reduction applies to subsidized and unsubsidized loans alike.
A dependent first-year student enrolled at 75 percent of full time, for example, would have the $5,500 limit reduced by 25 percent, to $4,125, and the $3,500 subsidized limit reduced to $2,625. You still need at least half-time enrollment to borrow at all. Parent PLUS Loans are not reduced this way.
How your school sets the amounts
You do not choose between the two loans; your school offers what you qualify for, in this order. A subsidized loan can cover only your financial need: the cost of attendance minus your Student Aid Index and the other aid you receive. An unsubsidized loan can then cover the rest of the cost of attendance, minus all other aid, up to the annual limit.
Example (hypothetical): how the cap and the need interact
A dependent first-year student's cost of attendance is $24,000. Her Student Aid Index is $4,000, and she receives a $3,000 grant, so her financial need is $17,000.
Her need is far above the $3,500 subsidized cap, so she is offered the full $3,500 subsidized. The rest of her $5,500 annual limit, $2,000, can come as an unsubsidized loan. Beyond that, the gap has to be covered some other way, such as a Parent PLUS Loan, savings or work.
That is why a lower Student Aid Index can mean more of your borrowing is subsidized. Our guide to the Student Aid Index explains how it is figured, and the FAFSA & SAI Estimator gives a rough figure from your income.
You can accept less than you are offered; tell your financial aid office the amount you want. First-time borrowers must complete entrance counseling and sign a Master Promissory Note before the money is paid out.
The rate and the fee for 2026–27
Federal student loan rates are fixed for the life of each loan and are set once a year from the 10-year Treasury note auction in May. For loans first disbursed from July 1, 2026, through June 30, 2027, the rates are:
- 6.52 percent for undergraduate Subsidized and Unsubsidized Loans, from a Treasury yield of 4.468 percent plus 2.05 percentage points; the cap for these loans is 8.25 percent.
- 8.07 percent for graduate and professional Unsubsidized Loans.
- 9.07 percent for PLUS Loans to parents and graduate students.
The loan fee is taken from each disbursement before the money reaches your school. For Subsidized and Unsubsidized Loans first disbursed before October 1, 2027, it is 1.057 percent, so a $5,500 loan carries a fee of $58.13. For PLUS Loans it is 4.228 percent.
When repayment starts
Neither loan has to be repaid while you are enrolled at least half time. Repayment begins after a six-month grace period that starts when you graduate, leave school or drop below half-time enrollment. On a subsidized loan, the Department of Education keeps paying the interest through those six months; on an unsubsidized loan, it keeps building. If you return to school at least half time before the grace period ends, repayment is put off again.
Graduate and parent loans changed in July 2026
The 2025 law made its biggest loan changes above the undergraduate level, starting with loans made on or after July 1, 2026:
- Grad PLUS Loans ended for new borrowers.
- Graduate students can borrow up to $20,500 a year and $100,000 in total; professional students, such as those in law or medicine, up to $50,000 a year and $200,000 in total.
- A lifetime limit of $257,500 applies to a borrower's own federal student loans.
- Parent PLUS Loans are capped at $20,000 a year and $65,000 in total for each dependent student, and they do not count toward the parent's own lifetime limit.
Students who were already enrolled in a graduate or professional program and had received a Direct Loan for it before July 1, 2026, can keep borrowing under the earlier rules for a limited time while they stay enrolled in that program.
Before you accept a loan
- Use grants and scholarships first. A Pell Grant and other grants do not have to be repaid.
- Accept subsidized loans before unsubsidized ones, because the interest on them is paid while you are in school.
- Borrow what the gap requires, not what is offered. Estimate the gap with the College Financial Aid Calculator and accept that amount.
- Consider paying unsubsidized interest while in school, even in small amounts, so it is not added to your principal.
- File the FAFSA every year, since your eligibility for subsidized loans is recalculated each time; our step-by-step FAFSA guide walks through it.
Common questions
Can graduate students get subsidized loans?
No. Direct Subsidized Loans are only for undergraduates with financial need. Graduate and professional students can borrow Direct Unsubsidized Loans, at 8.07 percent for loans first disbursed from July 1, 2026, through June 30, 2027, within the new limits.
Can I turn down part of a loan?
Yes. You can accept less than the amount offered, or decline a loan entirely, by telling your school's financial aid office. Grants and scholarships do not depend on how much you borrow.
What happens if I drop below half time?
You cannot receive new Direct Loans while enrolled less than half time, and your six-month grace period begins. If you return to at least half-time enrollment before it ends, repayment is put off again; if not, repayment starts when the grace period is over.
Does a parent's PLUS loan count against the student's limit?
No. A Parent PLUS Loan is the parent's debt and has its own limits: from July 1, 2026, $20,000 a year and $65,000 in total for each dependent student. It does not count toward the parent's own lifetime limit either.
Official sources
- StudentAid.gov — Subsidized vs. unsubsidized loans
- Federal Student Aid — Interest rates for Direct Loans first disbursed July 1, 2026, to June 30, 2027
- Federal Student Aid — Fiscal year 2027 sequester changes to Direct Loan fees
- Federal Student Aid — Frequently asked questions on loan limits (PDF)
- Federal Student Aid — Reducing annual loan limits for less-than-full-time enrollment (PDF)
Read your aid offer line by line
When your aid offer arrives, separate the money you will not repay from the money you will. Grants and scholarships come first; then look at each loan's type, amount and fee. Accept the subsidized loan in full if you need to borrow at all, take only as much of the unsubsidized loan as the remaining gap requires, and keep a note of what you borrowed each year against the limits above.
