How to pay for college · By CalChannel Editorial Team · Updated September 29, 2026
A Direct Subsidized Loan is a federal student loan for undergraduates with financial need, and the U.S. Department of Education pays its interest while you’re in school at least half-time, during the six-month grace period and during deferment. A Direct Unsubsidized Loan isn’t based on need, and interest builds from the day the money is paid out. For loans first disbursed between July 1, 2026, and June 30, 2027, both carry a fixed 6.52% rate for undergraduates.
Subsidized and unsubsidized loans are both federal Direct Loans you get by filing the FAFSA. They have the same rate for undergraduates and the same 1.057% loan fee. The difference is who pays the interest while you’re in school, and that difference can add hundreds of dollars to what you owe.
This guide explains how each loan works, the 2026-27 rates and borrowing limits, and the federal loan changes that took effect on July 1, 2026.
| Feature | Direct Subsidized Loan | Direct Unsubsidized Loan |
|---|---|---|
| Who can borrow | Undergraduates with financial need | Undergraduates and graduate or professional students; no need requirement |
| Interest while in school (at least half-time) | Paid by the Department of Education | Accrues and is the borrower’s responsibility |
| Interest during grace period and deferment | Paid by the Department of Education | Accrues |
| Fixed rate, undergraduates (2026-27) | 6.52% | 6.52% |
| Fixed rate, graduate or professional (2026-27) | Not available | 8.07% |
| Loan fee | 1.057% | 1.057% |
Sources: U.S. Department of Education, GENERAL-26-33 (2026-27 Direct Loan interest rates); Federal Student Aid, Interest Rates and Fees. Full list at the end of the article.
In This Article
What Is a Subsidized Loan?
A Direct Subsidized Loan is a federal loan for undergraduate students who show financial need on the FAFSA. The Department of Education pays the interest while you’re enrolled at least half-time, for the first six months after you leave school (the grace period) and during a deferment. Because of that subsidy, your balance when repayment starts generally equals what you borrowed.
Your school decides how much you can receive, and the amount can’t be more than your financial need. Graduate and professional students can’t get subsidized loans.
What Is an Unsubsidized Loan?
A Direct Unsubsidized Loan is available to undergraduate, graduate and professional students, and you don’t have to show financial need. Your school sets the amount based on your cost of attendance minus other aid.
Interest starts accruing when the loan is disbursed and keeps accruing while you’re in school, during the grace period and during deferment or forbearance. You can pay it as it builds up. If you don’t, the unpaid interest may be added to your principal when repayment begins, and you then pay interest on a larger balance.
Interest Rates for 2026-27
Federal student loan rates are fixed for the life of the loan and reset each year for new loans. They equal the 10-year Treasury note yield from the last auction before June 1, plus a set add-on. For 2026-27, that Treasury yield was 4.468%.
| Loan type (first disbursed July 1, 2026-June 30, 2027) | Fixed rate | Loan fee |
|---|---|---|
| Direct Subsidized and Unsubsidized, undergraduates | 6.52% | 1.057% |
| Direct Unsubsidized, graduate or professional students | 8.07% | 1.057% |
| Direct PLUS (parents and eligible graduate students) | 9.07% | 4.228% |
Source: U.S. Department of Education, GENERAL-26-33; Federal Student Aid, Interest Rates and Fees. Loan fees apply to loans first disbursed on or after October 1, 2020, and before October 1, 2027.
For comparison, the undergraduate rate was 6.39% for loans first disbursed in 2025-26 and 6.53% in 2024-25.
How Much Can You Borrow?
Undergraduate limits combine subsidized and unsubsidized loans. The subsidized portion is capped within each annual limit.
| Year in school | Dependent students | Independent students* |
|---|---|---|
| First year | $5,500 (up to $3,500 subsidized) | $9,500 (up to $3,500 subsidized) |
| Second year | $6,500 (up to $4,500 subsidized) | $10,500 (up to $4,500 subsidized) |
| Third year and beyond | $7,500 (up to $5,500 subsidized) | $12,500 (up to $5,500 subsidized) |
| Aggregate limit | $31,000 (up to $23,000 subsidized) | $57,500 (up to $23,000 subsidized) |
*Also applies to dependent students whose parents can’t get a Parent PLUS Loan. Source: The Institute for College Access & Success (TICAS), Amounts and Terms for Loans Issued in 2026-27.
What Changed on July 1, 2026?
Federal law changed several loan rules for new borrowing starting July 1, 2026. Undergraduate subsidized and unsubsidized limits stayed the same, but graduate and parent borrowing changed.
- Grad PLUS ended for new borrowers. Graduate and professional students starting a new program aren’t eligible for Grad PLUS. Some continuing students qualify for a legacy provision.
- New graduate unsubsidized limits. Graduate students can borrow up to $20,500 a year ($100,000 aggregate). Professional students, such as those in medicine or law, can borrow up to $50,000 a year ($200,000 aggregate).
- Parent PLUS caps. New Parent PLUS borrowing is limited to $20,000 a year and $65,000 total per dependent student.
- Lifetime limit. A borrower can receive no more than $257,500 in total federal student loans, not counting Parent PLUS Loans taken out on a student’s behalf.
“With Grad PLUS gone for new students, undergraduates who plan on graduate school should think about their total federal borrowing early. Keeping undergraduate loans low leaves more room under the lifetime limit later.”
CalChannel Editorial Team
Which Loan Should You Use First?
If your aid offer includes both, accept the subsidized loan first. It has the same rate and fee as the unsubsidized loan, but it doesn’t grow while you’re in school. Then take only as much unsubsidized money as you need after grants, scholarships and work-study.
If you do borrow unsubsidized loans, paying even part of the interest while you’re in school keeps it from being added to your balance. For repayment options after you leave school, see our student loan repayment guide.
Frequently Asked Questions
What is the interest rate on subsidized and unsubsidized loans for 2026-27?
For loans first disbursed between July 1, 2026, and June 30, 2027, the fixed rate is 6.52% for undergraduate subsidized and unsubsidized loans and 8.07% for graduate unsubsidized loans.
Can I choose a subsidized loan instead of an unsubsidized one?
Only if you qualify. Subsidized loans depend on financial need from your FAFSA, and your school sets the amount. Any remaining eligibility is offered as an unsubsidized loan.
Can graduate students get subsidized loans?
No. Direct Subsidized Loans are only for undergraduates. Graduate and professional students can borrow Direct Unsubsidized Loans.
How much can a first-year student borrow?
A dependent first-year student can borrow up to $5,500 in Direct Loans, including up to $3,500 subsidized. An independent first-year student can borrow up to $9,500.
Is there a fee on federal student loans?
Yes. Direct Subsidized and Unsubsidized Loans have a 1.057% loan fee, which is taken out of each disbursement.
The Bottom Line on Subsidized vs. Unsubsidized Loans
Subsidized and unsubsidized loans have the same 6.52% rate for undergraduates in 2026-27, but only subsidized loans stop interest from building while you’re in school. Use subsidized loans first, borrow unsubsidized loans only for what you still need, and file the FAFSA each year to keep your eligibility.
See our guide to how to pay for college for grants and scholarships to use before borrowing.
Sources
- U.S. Department of Education. “GENERAL-26-33: Interest Rates for Federal Direct Loans First Disbursed Between July 1, 2026 and June 30, 2027.” fsapartners.ed.gov.
- Federal Student Aid. “Interest Rates and Fees for Federal Student Loans.” studentaid.gov.
- Federal Student Aid. “Subsidized and Unsubsidized Loans.” studentaid.gov.
- The Institute for College Access & Success. “Amounts and Terms for Loans Issued in 2026-27.” ticas.org.
- University of Iowa Office of Student Financial Aid. “Federal Student Loan Changes for 2026-27.” uiowa.edu.
CalChannel Editorial Team California college guides
The CalChannel editorial team researches and writes guides to California colleges, admissions and financial aid. We build our college profiles and aid guides from colleges’ own published data, federal IPEDS data and the California Student Aid Commission. Read our editorial policy.
