How federal Direct Unsubsidized Loans work

Federal Direct Subsidized Loans are one of the most common types of student loans out there.

You can use them to pay for undergraduate and graduate programs. Your credit score doesn’t matter and there’s no need for you to demonstrate financial need. But annual and lifetime limits might mean they come up short in covering your full degree.

How do federal Direct Unsubsidized Loans work?

A part of the William D. Ford Federal Direct Loan Program, federal Direct Unsubsidized Loans provide relatively affordable financing to eligible undergraduate and graduate students — regardless of your financial history.

These unsubsidized loans come with the same rates and fees for every student, which are set by Congress each year. You can apply for one by completing the Free Application for Federal Student Aid (FAFSA).

How much can I borrow?

How much you can borrow depends on two factors: your year in school and whether the Department of Education (DoE) considers you a dependent or independent student. While it’s unnecessary to prove financial need, there are annual and lifetime limits to how much you can borrow.

• Am I an independent student?

  The DoE considers you an independent student if you meet one of the following criteria:

  • 23 years old as of January 1 of this year
  • Married
  • Master’s or doctoral student in the next academic year
  • Active-duty service member in the US Armed Forces
  • Veteran
  • Parent or will be a parent of children who get more than half of their financial support from you during the next academic year
  • Tax dependents — other than a spouse — live with you and get more than half of their financial support from you now and during the next academic year
  • Current or former foster child as of age 13, emancipated minor, homeless youth or at risk of becoming homeless
  • Under legal guardianship of someone other than your parent or stepparent

  Even if you’re a dependent student, the DoE gives you the same limits as independent students if your parents can’t qualify for a Parent PLUS Loan.

Year in school	Dependent limit	Independent limit
First-year undergraduate	$5,500	$9,500
Second-year undergraduate	$6,500	$10,500
Third-year and beyond undergraduate	$7,500	$12,500
Graduate or professional student	N/A	$20,500
Undergraduate lifetime limit	$31,000 (or $57,500 if your parent can’t qualify for a Parent PLUS Loan)	$57,500
Graduate or professional student lifetime limit	N/A	$138,500

How much does it cost?

There are two main costs to consider with the Direct Unsubsidized Loan: interest and fees.

• Undergraduate interest rate: 5.5%
• Graduate and professional student interest rate: 7.05%
• Origination fee: 1.059%

The interest rate is the percentage of the unpaid loan balance you pay over one year. Undergraduate students get the same on both Direct Subsidized and Unsubsidized Loans. Graduate rates are slightly higher.

The origination fee is deducted from your loan before it’s disbursed. This means your loan balance will be slightly higher than the amount your school receives.

Congress sets both the interest rates and fees each year on July 1.

Case study: Anna’s experience

Anna Serio
Writer

I managed to swing a free ride for my undergraduate degree, but wasn’t so lucky in grad school. I got my master’s from the American University of Beirut, where federal loans were available to US citizens. I took out Direct Unsubsidized Loans, and for the first few semesters, I returned all extra funds. But because I couldn’t legally work in Lebanon, money got tight and I borrowed more.

I ended up graduating with $37,000 in federal loan debt. Because I had such a low-paying job in Beirut and was paid in cash, the graduated extended repayment plan was the only option I could afford. I’d be on track to repay more than I borrowed if I didn’t start making extra repayments.

Am I eligible for a Direct Unsubsidized Loan?

To qualify for a Direct Unsubsidized Loan, you need to meet the following criteria:

• Undergraduate, graduate or professional student
• Enrolled at least half time at a Title IV school more info button
• Meet other federal student aid requirements

Can I get a Direct Unsubsidized Loan with bad credit?

You can. In fact, the DoE doesn’t consider your credit when processing Direct Subsidized or Unsubsidized Loan applications. This also means you can qualify on your own even without a credit history.

What are my repayment options with a Direct Unsubsidized Loan?

With Direct Unsubsidized Loans, you can wait to make any payments until six months after you graduate, leave school or drop below half time. After that, your repayment plan kicks in. Direct Unsubsidized Loan holders are eligible for almost all repayment plans offered for federal loans except the Income-Sensitive Repayment Plan — that’s only available on FFEL Loans.

Repayment program	Terms	How it works	Eligible for federal forgiveness?
Standard Repayment Plan	10 years	Make the same fixed repayment each month.	Teacher Loan Forgiveness
Graduated Repayment Plan	10 years	Make repayments that increase over time — usually every 2 years.	Teacher Loan Forgiveness
Extended Repayment Plan	25 years	Make either fixed repayments or repayments that increase over time — usually every 2 years.	Teacher Loan Forgiveness
Revised Pay as You Earn (REPAYE) Repayment Plan	20 years for undergraduate loans 25 years for graduate or professional loans	Make monthly repayments of 10% of your income until the loan term is up. The DoE forgives the remaining balance after the term is up.	Teacher Loan Forgiveness REPAYE forgiveness Public Service Loan Forgiveness (PSLF)
Pay As you Earn (PAYE) Repayment Plan	20 years	Make monthly repayments of 10% of your income or what you’d pay on a Standard Repayment Plan — whichever is less. The DoE forgives the remaining balance after the term is up.	Teacher Loan Forgiveness PAYE forgiveness PSLF
Income-Based Repayment (IBR) Plan	20 years	Make monthly repayments of 10% more info button of your income or what you’d pay on a Standard Repayment Plan — whichever is less. The DoE forgives any remaining balance after the term is up.	Teacher Loan Forgiveness IBR forgiveness PSLF
Income-Contingent Repayment (ICR) Plan	25 years	Make monthly repayments of 20% of your income or what you’d pay on a 12-year plan with fixed repayments — whichever is less. The DoE forgives any remaining balance after the term is up.	Teacher Loan Forgiveness ICR forgiveness PSLF

Federal student loan repayment plans explained

Does the Direct Unsubsidized Loan program offer deferment or forbearance?

It does. Direct Unsubsidized Loans are eligible for all types of deferment and forbearance available to federal loans, with the exception of Parent PLUS forbearance. This allows you to place your student loan repayments on hold if you hit a temporary financial roadblock, such as going back to school or losing your job.

How student loan deferment and forbearance works

Is interest capitalized during deferment and my grace period?

Yes. Unlike with Direct Subsidized Loans, you’re responsible for paying any interest that adds up during deferment and forbearance, including while you’re in school and during the six-month grace period after you graduate.

This means any interest that adds up while you’re in school gets added to your loan balance. Since interest payments are based on your loan balance, interest capitalization means you’re effectively paying interest on interest.

Can I qualify for forgiveness with a Direct Unsubsidized Loan?

You can, though having a Direct Unsubsidized Loan isn’t enough to qualify you on your own. Most federal forgiveness programs are only available to certain professions and require a service commitment. You can also qualify for forgiveness by signing up for one of the income-based repayment plans after your term is up.

10+ student loan forgiveness programs explained

Bottom line

Direct Unsubsidized Loans have fewer restrictions than unsubsidized loans, but more competitive rates than the PLUS Loan program. However, with annual caps on how much you can borrow, they might not be able to cover your entire cost of attendance.

If that’s the case, explore your other options with our guide to student loans.

Frequently asked questions

• Do I need to complete entrance counseling with a Direct Unsubsidized Loan?

  Yes, if you’ve never taken out a Direct or FFEL Loan before. Otherwise it’s not required.

  Entrance counseling is a quick informational session designed to ensure borrowers are aware of what they signed up for when taking out a student loan. You can complete it online or in person at your school’s financial aid office.

• How can I apply for a Direct Unsubsidized Loan?

  You can apply for a Direct Unsubsidized Loan by completing the FAFSA. You don’t need to request any particular loan — the DoE will tell you what what you’re eligible for after processing your application.

• When should I apply for a Direct Unsubsidized Loan?

  The federal deadline for the FAFSA is June 30, 2019 — though some states and schools might have earlier cutoff dates.

• Do I need to complete entrance counseling with a Direct Unsubsidized Loan?

  Yes, if you’ve never taken out a Direct or FFEL Loan before. Otherwise it’s not required.

  Entrance counseling is a quick informational session designed to ensure borrowers are aware of what they signed up for when taking out a student loan. You can complete it online or in person at your school’s financial aid office. Learn more with our guide to student loan entrance counseling.