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What's the Difference Between Subsidized and Unsubsidized Student Loans?


The Bottom Line: How Much Loan Money?

Uncle Sam's pot of money for higher education isn't limitless, and neither is a student's ability to borrow from it. There are limits on loan amounts for each year of school and for a student's entire education. Some people borrow a combination of subsidized and unsubsidized loans; there are limits on the combined total. The FAFSA considers any scholarships, grants and expected family contributions and balances that money against the cost of the school when setting loan amounts.

With Federal Perkins Loans, based on need, undergraduates may be allowed to borrow up to $5,000 a year, with a maximum of $27,000 as an undergraduate. Graduate students may be allowed to borrow up to $8,000 a year, with a cap of $60,000 for undergraduate and graduate loans combined.

When you're dealing with subsidized and unsubsidized federal Stafford Loans, the amount students can borrow varies by year in school. The amount also is dictated by whether a student is considered a dependent or an independent student when filling out the FAFSA. Most traditionally aged college students will be considered dependents, so their parents' finances are included on the FAFSA. Specific conditions such as being older, being a veteran, being married, supporting children and pursuing advanced degrees can qualify a student for independent status so that the parents' income is not included [source: Stafford]. If parents can't take advantage of the federal loan designed for them --the PLUS loans -- then their children are treated as independent students.

Here's how much you can borrow in Stafford Loans:

  • First year in school, dependent student: The maximum is $5,500 for the first year. Only $3,500 can be in subsidized loans.
  • First year in school, independent student: Maximum is $9,500, with only $3,500 in subsidized loans
  • Second year, dependent student: Maximum $6,500; no more than $4,500 in subsidized loans.
  • Second year, independent student: Maximum $10,500; no more than $4,500 in subsidized loans.
  • Third year and beyond, dependent student: Maximum $7,500; no more than $5,500 in subsidized loans.
  • Third year and beyond, independent student: Maximum $12,500; no more than $5,500 in subsidized loans.
  • Graduate and professional-degree students: Maximum $20,500 a year; no more than $8,500 in subsidized loans.

The maximum in total loans allowed at graduation are:

  • Dependent undergraduate student: $31,000. A total of $23,000 can be subsidized.
  • Independent undergraduate student: $57,000, with a total of $23,000 subsidized.
  • Graduate or professional degree student: $138,500, including the total of undergraduate loans. A total of $65,500 can be subsidized [source: StudentAid].

For many students, federal loans, subsidized and/or unsubsidized can make getting an education possible.

Read the next page for a few other things to keep in mind.