With a Direct Unsubsidized Loan, interest begins to accumulate as soon as the funds are sent to your school. You have two options to handle this accumulating interest while you are enrolled at least half-time:
- Pay the interest as it accrues. Making small, interest-only payments while in school is the most effective way to minimize your total loan cost.
- Forgo payments until after graduation. If you choose not to pay the interest, it will be added to your principal loan balance when you begin repayment. This process is known as interest capitalization.
Capitalization increases your loan principal, meaning you’ll pay interest on a larger balance, costing you more over the life of the loan. For example, if you borrow $10,000 and accrue $1,500 in interest during college, your new principal balance at repayment will be $11,500.
Eligibility for Direct Unsubsidized Loans is broader than for need-based aid. To qualify, a student must:
- Be enrolled at least half-time in an eligible degree or certificate program.
- Complete the Free Application for Federal Student Aid (FAFSA).
- Meet the general eligibility criteria for federal student aid.
Your school’s financial aid office determines the loan amount you can borrow based on the cost of attendance, minus any other financial aid you receive.
It’s essential to understand the difference between the two main types of Direct Loans:
| Feature | Direct Unsubsidized Loan | Direct Subsidized Loan |
|---|---|---|
| Financial Need Required? | No. Available to all eligible students. | Yes. You must demonstrate financial need. |
| Interest in School | You (the borrower) are always responsible. | The U.S. Dept. of Education pays it for you. |
| Eligible Borrowers | Undergraduate, graduate, and professional students. | Undergraduate students only. |
If you are offered both, it is almost always better to accept the Subsidized Loan first to minimize your education costs.
The Department of Education sets annual and aggregate (total) limits on how much you can borrow in Direct Unsubsidized Loans. These limits depend on your academic year and dependency status.
Annual Loan Limits (as of 2024-2025):
- Dependent Undergraduates: Up to $5,500–$7,500 per year, depending on your year in school.
- Independent Undergraduates: Up to $9,500–$12,500 per year.
- Graduate or Professional Students: Up to $20,500 per year.
There is also a lifetime aggregate limit. For the most current limits, refer to the Federal Student Aid website.
- Pay interest early: Contact your loan servicer to set up interest-only payments while in school to avoid capitalization.
- Borrow only what you need: You are not required to accept the full loan amount offered. Create a budget and borrow the minimum necessary to cover your costs.
- Know your servicer: After your loan is disbursed, it will be assigned to a loan servicer who manages your billing. Create an online account to track your balance and make payments.