The Direct Unsubsidized Loan is one of the most common federal student loans available to borrowers. While not as valuable as a Direct Subsidized Loan, these loans can still be incredibly helpful in empowering you to afford your college education.
Here, we explore Direct Unsubsidized Loans so that you will have enough information to make an informed decision when applying for and accepting your financial aid.
What is a Direct Unsubsidized Loan?
Direct Unsubsidized Loans are a special type of federal student loan created under the William D. Ford Federal Direct Loan Program. These loans are sometimes also known as Unsubsidized Stafford Loans, for this reason. They are made available to all undergraduate, graduate, and professional degree students, regardless of financial need.
These loans are called Direct Unsubsidized Loans because they are not subsidized by the federal government, in comparison to Direct Subsidized Loans. This means that they will accrue interest at all times, including while:
- You are actively enrolled in school at least half time
- During your six-month student loan grace period after you leave school
- During any period of deferment or forbearance
If you are eligible to receive both subsidized and unsubsidized loans, you should always begin by accepting the subsidized loans, which can save you hundreds or thousands of dollars over the life of the loan.
What is the interest rate on a Direct Unsubsidized Loan?
Federal student loan interest rates vary depending on the year in which they were disbursed. They are set by Congress.
Direct Unsubsidized Loans carry different interest rates depending on who is borrowing them: undergraduate vs. graduate/professional students
For undergraduate borrowers, Direct Unsubsidized Loans disbursed between July 1, 2019 and July 1, 2020 carry a 4.53% interest rate. Those disbursed between July 1, 2018 and July 1, 2019 carry an interest rate of 5.05%.
For graduate and professional borrowers, Direct Unsubsidized Loans disbursed between July 1, 2019 and July 1, 2020 carry a 6.08% interest rate. Those disbursed between July 1, 2018 and July 1, 2019 carry an interest rate of 6.6%.
Do Direct Unsubsidized Loans have any fees?
In addition to interest, you will be charged a loan origination fee. This fee is a percentage of the total loan amount. The loan origination fee varies by year:
- For loans disbursed between October 1, 2017 and October 1, 2018 it is 1.066%
- For loans disbursed between October 1, 2018 and October 1, 2019 it is 1.062%
- For loans disbursed between October 1, 2019 and October 1, 2020 it is 1.059%
How much can you borrow?
The total amount that you can borrow in Direct Unsubsidized Loans will depend on a number of factors, including whether you are an undergraduate student (and if so, if you are a dependent or independent) or an undergraduate student, as well as the specific year of your education for which you are borrowing.
For undergraduate students who are dependent on their parents, you can borrow a total of $31,000 in Direct Unsubsidized Loans. The amount varies by year:
- During your first year you can borrow $5,500 in subsidized loans
- During your second year you can borrow $6,500 in subsidized loans
- During your third year (and beyond) you can borrow $7,500 in subsidized loans
For undergraduate students who are independent of their parents, you can borrow a total of $57,500 in Direct Unsubsidized Loans. The amount varies by year:
- During your first year you can borrow $9,500 in subsidized loans
- During your second year you can borrow $10,500 in subsidized loans
- During your third year (and beyond) you can borrow $12,500 in subsidized loans
For graduate and professional students, you can borrow a total of $138,500 in Direct Unsubsidized Loans. This aggregate includes loans for your undergraduate career. You can borrow a total of $20,500 each year.
Typically, your school will determine exactly how much you can borrow each year and notify you of this amount in your financial aid package.
Direct Unsubsidized Loan Eligibility
To qualify for a Direct Unsubsidized Loan, you must:
- Be enrolled at least half-time in college
- Be enrolled in a program that will award you with a degree or certificate upon completion
- Be either an undergraduate, graduate, or professional student
You do not need to demonstrate financial need to qualify.
How to Apply for a Direct Unsubsidized Loan
By completing our FAFSA application, you will automatically apply for all types of financial aid. If you are eligible to receive a Direct Unsubsidized Loan based on your FAFSA application, your school will notify you in your financial aid package. You can submit a FAFSA application here.
Direct Unsubsidized Loan Repayment Plans
Whether your Direct Loan is subsidized or unsubsidized, the U.S. Department of Education is your lender. That being said, your loan will be serviced by one of 11 federal student loan servicers. Your servicer will accept your monthly payments, advise you of your repayment options, and otherwise manage your loan.
Borrowers with Direct Unsubsidized Loans are typically eligible to enroll in the following repayment plans:
- Standard Repayment Plan
- Graduate Repayment Plan
- Extended Repayment Plan
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Pay As You Earn Repayment Plan (PAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Income-Sensitive Repayment Plan
If you would like to change the repayment plan on your Direct Unsubsidized Loan, simply contact your loan servicer.
Direct Unsubsidized Loan Refinancing and Consolidation
There is no federal student loan refinancing program. In order to refinance your Direct Unsubsidized Loan, you would need to turn to a private lender who would essentially convert your loan into a private loan. While this may bring benefits such as a lower interest rate or lower monthly payments, it also means that you will be losing certain benefits carried by federal loans, such as the ability to place your loans in deferment or forbearance. Therefore, it’s important to weigh the pros and cons of refinancing before you make a decision.
Student loan consolidation is a process in which you combine multiple federal student loans into a single new loan, called a Direct Consolidation Loan. This new loan’s balance will be the total of all of its component loans, added up. The interest rate that it carries will be the weighted average of all of the loans that make it up.
Direct Unsubsidized Loans can be consolidated under this program.
Direct Unsubsidized Loan History
The Higher Education Act of 1965 created the Federal Guaranteed Student Loan program, which made federally-backed student loans available to college students. This program was renamed the Robert T. Stafford Student Loan Program in 1988, and the loans offered through the program became commonly referred to as Stafford Loans. Direct Unsubsidized Loans are managed by this program.
Alternatives to Direct Unsubsidized Loans
All college students qualify for Direct Unsubsidized Loans, regardless of their financial situation. If these loans will not cover all of your college expenses for the year, you do have other options to consider. You may, for example, be able to borrow private student loans, though these will typically be more expensive.
The parents of dependent undergraduate students may qualify to borrow Direct Parent PLUS Loans to cover any gaps that still exist. Additionally, graduate students for whom Direct Unsubsidized Loans do not cover all of their college expenses may qualify to borrow Direct Graduate PLUS Loans.