Subsidized vs. unsubsidized

What's the difference? With subsidized loans, the federal government pays the interest that accrues while the student is in school, during the six-month grace period after graduation, and during any loan deferment periods. With unsubsidized loans, the borrower is responsible for paying the interest during these periods. Only undergraduate students are eligible for subsidized loans, and eligibility is based on demonstrated financial need.

 

Interest Rates on Federal Student Loans Decrease to Record Lows for 2020-2021

For the second year in a row, interest rates on federal student loans will decrease for the 2020-2021 academic year. This year's decrease brings rates to record lows. The rates apply to new federal student loans made on or after July 1, 2020, through June 30, 2021. The interest rate is fixed for the life of the loan.

New rate 2020-2021 Old rate 2019-2020 Available to Borrowing limits

Direct Loans: Undergraduates

(Subsidized)

2.75%

4.53%

Undergraduate students only

Subsidized loans are based on financial need as determined by the federal aid application (FAFSA)

For dependent undergraduates:

1st year: $5,500 (max $3,500 subsidized)

2nd year: $6,500 (max $4,500 subsidized)

3rd, 4th, 5th year: $7,500 (max $5,500 subsidized)

Max: $31,000 (max $23,000 subsidized)

Direct Loans: Undergraduates

(Unsubsidized)

2.75%

4.53%

Undergraduate students only; all students are eligible regardless of financial need

For dependent undergraduates:

1st year: $5,500 (max $3,500 subsidized)

2nd year: $6,500 (max $4,500 subsidized)

3rd, 4th, 5th year: $7,500 (max $5,500 subsidized)

Max: $31,000 (max $23,000 subsidized)

Direct Loans: Graduate or Professional Students

4.30%

6.08%

Graduate or professional students only; all students are eligible regardless of financial need

Unsubsidized loans only

$20,500 per year; max $138,500

Direct PLUS Loans:

Parents and Graduate Students

5.30%

7.08%

Parents of dependent undergraduate students and graduate or professional students

Unsubsidized loans only

Total cost of education, minus any other aid received by student or parent


IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable--we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Copyright 2025 by Broadridge Investor Communication Solutions Inc.
All Rights Reserved.