The primary difference between the two programs involves the treatment of interest while the student is still in school:
- Direct Subsidized Loans do not begin to accrue interest until the student has graduated or is no longer enrolled in college at all.
- Direct Unsubsidized Loans will begin to accrue interest immediately. As interest accrues, the amount that a student will owe to the loan servicer will increase.
It is important to recognize that the beginning of repayment and the beginning of interest accrual are different. For both types of loans, repayment does not begin until 6 months after the student has ceased enrollment in higher education, whether through graduation or withdrawal, or has dropped below half-time enrollment. This is called the grace period.
Direct Subsidized Loans are only available to students with any amount of unmet need, while Direct Unsubsidized Loans are available to all other eligible students.
For more information on the Federal Direct Loan program, including annual and lifetime maximum amounts, repayment plans, and alternatives to lending, visit: https://studentaid.gov/understand-aid/types/loans