Subsidized vs Unsubsidized Loans for 2026–27: Interest, Limits and Rates
A Direct Subsidized Loan requires financial need, and the borrower is not obligated to pay interest while enrolled at least half time (with the exceptions in 34 CFR 685.207), while on a Direct Unsubsidized Loan the borrower is responsible for interest from the day the first installment is disbursed. For undergraduates, both loan types carry a fixed 6.52% rate on loans first disbursed July 1, 2026 to before July 1, 2027.
When we checked on November 2, 2026, the eCFR (up to date as of October 29, 2026), the Federal Register documents, Pub. L. 119-21 and Pub. L. 116-260 and the U.S. Code read as quoted on this page. The FSA announcements are cited by their posting dates and were read in Internet Archive copies: GENERAL-26-28 (posted May 13, 2026), GENERAL-25-20 (posted May 5, 2025) and GENERAL-26-42 (posted June 29, 2026, updated July 10, 2026).
Maintained by Archie Chang · Reviewed November 2, 2026 · Methodology & sources
Subsidized and unsubsidized loans side by side
| Direct Subsidized | Direct Unsubsidized | |
|---|---|---|
| Financial need required | Yes. 685.200(a)(2)(i) says a Direct Subsidized Loan borrower must demonstrate financial need. | No. 685.200(a)(2) states a financial need requirement only for Direct Subsidized Loans. |
| Who can borrow | Undergraduate students. For periods of instruction beginning on or after July 1, 2012, a graduate or professional student is not eligible for a Federal Direct Stafford loan (HEA 455(a)(3)(A)(i)). | Undergraduate, graduate and professional students. |
| Interest while enrolled at least half time | The borrower is not obligated to pay interest, unless required to make payments during those periods (685.207(b)(3)(i)). | The borrower is responsible for the interest that accrues (685.207(c)(3)). |
| Interest in the grace period | The borrower is not obligated to pay interest, except on loans first disbursed on or after July 1, 2012 and before July 1, 2014 (685.207(b)(3)(ii) and (iii)). | The borrower is responsible for the interest that accrues (685.207(c)(3)). |
| Interest during a deferment | Installments of principal and interest need not be paid (685.204(a)(1)). | Principal need not be paid, but interest accrues and is capitalized or paid by the borrower (685.204(a)(2)). |
| Interest rate, undergraduates (first disbursed July 1, 2026 to before July 1, 2027) | 6.52% | 6.52% |
| Interest rate, graduate and professional students (same period) | Not eligible | 8.07% |
| Loan fee (first disbursed on or after Oct. 1, 2020 and before Oct. 1, 2027) | 1.057% | 1.057% |
| Aggregate limit, undergraduates | $23,000 | $31,000 for a dependent student and $57,500 for an independent student, minus any subsidized amounts (685.203(e)(1) and (2)) |
The rates are the fixed rates in the Federal Register notice of September 10, 2026 and the fee is the one in the FSA announcement; the interest rates page has the add-ons, the maximums, past years and the fee examples.
Who pays the interest, and when
Financial need is the first test for a subsidized loan:
“A Direct Subsidized Loan borrower must demonstrate financial need in accordance with title IV, part F of the Act.”
On a subsidized loan the rules say the borrower is not obligated to pay interest in two periods, with a qualifier in each:
“A borrower is not obligated to pay interest on a Direct Subsidized Loan during periods when the borrower is enrolled at an eligible school on at least a half-time basis unless the borrower is required to make payments on the loan during those periods under paragraph (b)(1) of this section.”
“Except as provided in paragraph (b)(3)(iii) of this section, a borrower is not obligated to pay interest on a Direct Subsidized Loan during grace periods.”
“In the case of a Direct Subsidized Loan for which the first disbursement is made on or after July 1, 2012 and before July 1, 2014, a borrower is responsible for the interest that accrues during the grace period.”
On an unsubsidized loan the interest is the borrower's from the start:
“A borrower is responsible for the interest that accrues on a Direct Unsubsidized Loan during in-school and grace periods. Interest begins to accrue on the day the first installment is disbursed. Interest that accrues may be capitalized or paid by the borrower.”
“The Secretary may add unpaid accrued interest to the borrower's unpaid principal balance. This increase in the principal balance of a loan is called “capitalization.””
During a deferment the same split applies:
“A Direct Subsidized Loan or Direct Subsidized Consolidation Loan borrower who meets the requirements described in paragraphs (b), (d), (e), (f), (g), (h), (i), or (j) of this section is eligible for a deferment during which periodic installments of principal and interest need not be paid.”
“A Direct Unsubsidized Loan, Direct Unsubsidized Consolidation Loan, Direct PLUS Loan, or Direct PLUS Consolidation Loan borrower who meets the requirements described in paragraphs (b) through (j) of this section is eligible for a deferment during which periodic installments of principal need not be paid but interest does accrue and is capitalized or paid by the borrower.”
Worked example: interest on an unsubsidized loan during school
Arithmetic, not a servicer figure. The amount, $3,500, is the first-year subsidized limit in 685.203(a)(1)(i), so the same loan fits in either column. The assumptions: simple interest on one disbursement at 6.52%, for whole years, with no payments during four years in school. The sources quoted here do not state a daily or day-count method, so a servicer's figures can differ by a few dollars.
| Direct Subsidized | Direct Unsubsidized | |
|---|---|---|
| Amount borrowed (one disbursement, undergraduate) | $3,500 | $3,500 |
| Rate (first disbursed July 1, 2026 to before July 1, 2027) | 6.52% | 6.52% |
| Interest accrued in one year (arithmetic: $3,500 × 6.52%) | Not owed by the borrower in school | $228.20 |
| Interest owed by the borrower for the four years in school (arithmetic: 4 × $228.20) | $0 | $912.80 |
| Balance if the Secretary adds the unpaid interest to principal (685.202(b)(1) says the Secretary may) | $3,500 | $4,412.80 |
| Loan fee at 1.057% (arithmetic, truncated to cents) | $36.99 | $36.99 |
| Amount received after the fee is deducted from the proceeds (685.202(c)(2)) | $3,463.01 | $3,463.01 |
The fee comes first because the regulation says the Secretary "deducts the loan fee from the proceeds of the loan." The two columns differ only in who owes the interest while the borrower is enrolled at least half time.
“Deducts the loan fee from the proceeds of the loan”
Loan limits
The undergraduate figures are the ones on the federal student loan limits page. The totals below are arithmetic from 34 CFR 685.203(a), (b)(1)(i) and (c)(2), for full-time enrollment in a program of at least a full academic year.
| Year of study | Most that can be subsidized | Total, dependent student | Total, independent student |
|---|---|---|---|
| First year | $3,500 | $5,500 | $9,500 |
| Second year | $4,500 | $6,500 | $10,500 |
| Third year and beyond | $5,500 | $7,500 | $12,500 |
Two rules in 34 CFR 685.203(m) change those amounts: a reduction in proportion for less-than-full-time enrollment (685.203(m)(1)), and, beginning on July 1, 2026, a school may set lower limits for a program (685.203(m)(2)).
“in any case in which a student is enrolled in an eligible program (except for a non-term program) at an institution on a less than a full-time basis during any academic year, the amount of any Direct Loan that student may borrow for an academic year or its equivalent shall be reduced in direct proportion to the degree to which that student is not so enrolled on a full-time basis”
“an institution may limit the total amount of Direct Subsidized, Unsubsidized, and PLUS loans that a student, or a parent on behalf of such student, may borrow for a program of study for an academic year, as long as any such limit is applied consistently to all students enrolled in that program of study”
The aggregate limit is $23,000 for subsidized loans (685.203(d)(1)). The same section's (d)(2) lists $65,500 for a graduate or professional student "including loans for undergraduate study"; the sources used here do not explain how that figure is applied.
| Period of enrollment | Graduate student | Professional student | Source |
|---|---|---|---|
| Beginning before July 1, 2026 (the eCFR text says ending on or before June 30, 2026) | $20,500 ($8,500 plus $12,000) | $20,500 ($8,500 plus $12,000) | 34 CFR 685.203(b)(2)(iii) and (c)(2)(v) |
| Beginning on or after July 1, 2026 | $20,500 | $50,000 | Pub. L. 119-21 sec. 81001, HEA 455(a)(4)(A) |
The second row applies to periods of instruction beginning on or after July 1, 2026. The eCFR text of 685.203 (up to date as of October 29, 2026) still shows the first row, and its editorial note says the May 1, 2026 amendment of (b)(2)(iv)(A)(1) through (C) and (e)(4) through (7) could not be completed. The statute is the source for the second row. Aggregate Direct Unsubsidized limits for graduate students, in addition to undergraduate borrowing, are $100,000 and for professional students $200,000 (HEA 455(a)(4)(B)); for periods of enrollment beginning before July 1, 2026, 685.203(e)(3) gives $138,500 including undergraduate loans. Pub. L. 119-21 also sets a lifetime maximum of $257,500, which excludes Direct PLUS or Federal PLUS loans made to the student as a parent on behalf of a dependent undergraduate (HEA 455(a)(6); 685.203(j)(2)).
“At 91 FR 23883, May 1, 2026, § 685.203 was amended in part by revising paragraphs (b)(2)(iv)(A)(1) through (C) and (e)(4) through (7); however, the amendment could not be completed because the paragraphs do not exist.”
The professional-student figures depend on the definition of a professional degree. FSA reported a court order that preliminarily stayed part of that definition; the federal student loan limits page has the details.
“On June 24, 2026, the U.S. District Court for the District of Columbia, in consolidated cases Nos. 26-1780, 26-1941, preliminarily stayed part of the U.S. Department of Education’s (the Department’s) professional degree definition contained in the Reimagining and Improving Student Education (RISE) Final Rule published in the Federal Register on May 1, 2026.”
What Pub. L. 119-21 changed, and what the text shows it did not
- Subsidized eligibility: sec. 81001 restates the ineligibility of graduate and professional students for Federal Direct Stafford (subsidized) loans for periods of instruction beginning on or after July 1, 2012, so that rule is not a 2026 change.
- Limits from July 1, 2026: sec. 81001 adds the graduate and professional annual and aggregate Direct Unsubsidized limits in the table above, ends Direct PLUS Loans to graduate and professional students, and adds the lifetime maximum.
- Deferments: sec. 82002 ends unemployment and economic hardship deferments for loans made on or after July 1, 2027. On a subsidized loan installments of principal and interest need not be paid during a deferment (685.204(a)(1)); on an unsubsidized loan interest accrues during a deferment (685.204(a)(2)). Neither deferment is available on a loan made on or after that date.
“Subject to subparagraph (B), and notwithstanding any provision of this part or part B”
“for any period of instruction beginning on or after July 1, 2012, a graduate or professional student shall not be eligible to receive a Federal Direct Stafford loan under this part”
“For loans disbursed on or after July 1, 2027, a borrower may not receive an unemployment deferment.”
“For loans disbursed on or after July 1, 2027, a borrower may not receive an economic hardship deferment under paragraph (g) of this section.”
Interim exception. Under HEA 455(a)(8), a student who, as of June 30, 2026, is enrolled in a program and has had a loan made for it keeps the prior rules for the expected time to credential, which is the lesser of three academic years and the time left in the program. The text turns off the annual and aggregate limits above, the Parent PLUS limits, the lifetime maximum and the end of Direct PLUS Loans for graduate and professional students for that period. 34 CFR 685.203(j)(4) and 685.200(b)(3) say that if the student withdraws or otherwise ceases to be enrolled in the program after receiving the exception, the limitations apply.
“Paragraphs (3)(C), (4), (5), and (6) shall not apply, and paragraph (3)(A)(ii) shall apply as such paragraph was in effect for periods of instruction ending before June 30, 2026, during the expected time to credential described in subparagraph (B), with respect to an individual who, as of June 30, 2026”
“is enrolled in a program of study at an institution of higher education”
“has received a loan (or on whose behalf a loan was made) under this part for such program of study”
“A Direct Loan was made for such program of study prior to July 1, 2026.”
“If the student withdraws in accordance with § 668.22 or otherwise ceases to be enrolled in the program of study at any point after receiving the exception under paragraph (j)(3) of this section, the limitations under paragraph (j)(2) of this section shall apply.”
When we checked on November 2, 2026, 34 CFR 685.207, which holds the in-school and grace-period interest rules, carried no change for these sections.
The former subsidized usage limit (SULA)
Former HEA 455(q), added by Pub. L. 112-141, limited Direct Subsidized Loan eligibility for first-time borrowers on or after July 1, 2013. The regulation measured it against a maximum eligibility period equal to 150 percent of the program length. Section 705(a) of division FF of Pub. L. 116-260 repealed it, and section 705(b) let the Secretary implement the repeal before July 1, 2023. The Department's final regulations of June 14, 2021 (86 FR 31432) removed the limit for loans first disbursed on or after July 1, 2021, effective August 13, 2021. The current 20 U.S.C. 1087e(q) is a different provision, the Repayment Assistance Plan added by Pub. L. 119-21.
“Subsec. (q). Pub. L. 112-141, § 100302(a), added subsec. (q).”
“Maximum eligibility period is a period of time, measured in academic years, equal to 150 percent of the length of the educational program, as published by the institution, in which the borrower is currently enrolled.”
“Section 455(q) of the Higher Education Act of 1965 (20 U.S.C. 1087e(q)) is repealed.”
“the Secretary of Education may implement the repeal authorized under subsection (a) before (but not later than) July 1, 2023.”
“However, the July 1, 2023, implementation dates in section 705(b) of Pub. L. 116-260, set out above, were not correspondingly amended.”
“the Secretary removes the subsidized usage loan limit restriction (SULA) for any borrower who receives a Federal Direct Stafford Subsidized Loan first disbursed on or after July 1, 2021, regardless of the award year associated with the loan. In addition, all subsidy benefits will be reinstated retroactively to the date on which the loss of subsidy was applied for all Federal Direct Stafford Subsidized Loans with an outstanding balance on July 1, 2021, and for all award years since the 2013-2014 award year.”
“Provisions specifying the limitations on a borrower's eligibility for Direct Subsidized Loans and the borrower's responsibility for accruing interest in Sec. 685.200(f) are removed.”
“Subsec. (q). Pub. L. 116-260 struck out subsec. (q) which related to eligibility for, and interest charges on, Federal Direct Stafford Loans for new borrowers on or after July 1, 2013.”
Rates and fees for 2026–27
Undergraduate Direct Subsidized and Direct Unsubsidized Loans first disbursed on or after July 1, 2026 and before July 1, 2027 carry a fixed rate of 6.52%; graduate and professional Direct Unsubsidized Loans carry 8.07%. The rate stays the same for the life of the loan, and loans first disbursed in other years carry the rate for their year.
The eCFR gives a ceiling for the fee and the FSA announcement gives the fee for the same loans, 1.057%. Both are shown because they are different kinds of statement: one is a maximum, the other the dated figure FSA tells schools to use.
“For a Direct Subsidized or Direct Unsubsidized loan first disbursed on or after July 1, 2010, charges the borrower a loan fee not to exceed 1 percent of the principal amount of the loan”
“This means for all loans where the first disbursement is made on or after Oct. 1, 2020, and before Oct. 1, 2027, the loan fees are as follows: 1.057% for Direct Subsidized Loans and Direct Unsubsidized Loans.”
Frequently asked questions
What is the difference between subsidized and unsubsidized loans?
34 CFR 685.200(a)(2)(i) requires a Direct Subsidized Loan borrower to demonstrate financial need and states no such requirement for Direct Unsubsidized Loans. On a subsidized loan the borrower is not obligated to pay interest while enrolled at least half time or, with an exception for loans first disbursed from July 1, 2012 to before July 1, 2014, during the grace period; on an unsubsidized loan the borrower is responsible for the interest that accrues in school and in the grace period (34 CFR 685.207).
Does the borrower owe interest on a subsidized loan while in school?
Not while enrolled at an eligible school on at least a half-time basis, unless the borrower is required to make payments on the loan during those periods (34 CFR 685.207(b)(3)(i)). The grace period works the same way, except that for loans first disbursed on or after July 1, 2012 and before July 1, 2014 the borrower is responsible for the interest that accrues during the grace period.
Does interest build up on an unsubsidized loan while in school?
Yes. 34 CFR 685.207(c)(3) says the borrower is responsible for the interest that accrues during in-school and grace periods, that interest begins to accrue on the day the first installment is disbursed, and that it may be capitalized or paid. By simple-interest arithmetic, $3,500 at 6.52% accrues $228.20 in one year and $912.80 in four years.
Can graduate students get subsidized loans?
Pub. L. 119-21 sec. 81001 restates in HEA 455(a)(3)(A)(i) that, subject to subparagraph (B) and notwithstanding any provision of that part or part B, for any period of instruction beginning on or after July 1, 2012 a graduate or professional student shall not be eligible to receive a Federal Direct Stafford loan, which is the statute's name for the subsidized loan. Graduate and professional students can borrow Direct Unsubsidized Loans.
What are the 2026–27 interest rates and the loan fee?
For loans first disbursed July 1, 2026 to before July 1, 2027 the fixed rate is 6.52% for undergraduate Subsidized and Unsubsidized Loans and 8.07% for graduate and professional Unsubsidized Loans (91 FR 57581). FSA lists a loan fee of 1.057% for Subsidized and Unsubsidized Loans first disbursed on or after Oct. 1, 2020 and before Oct. 1, 2027, which is $58.13 on a $5,500 loan.
How much can an undergraduate borrow in a year?
Under 34 CFR 685.203, for full-time enrollment, a first-year dependent undergraduate can borrow up to $5,500, of which no more than $3,500 can be subsidized, and a first-year independent undergraduate up to $9,500; the amounts are reduced in proportion for less-than-full-time enrollment (685.203(m)(1)) and a school may set lower limits (685.203(m)(2)). The aggregate limits are $23,000 for subsidized loans and $31,000 (dependent) or $57,500 (independent) for subsidized and unsubsidized loans together.
What changed for graduate and professional students on July 1, 2026?
Pub. L. 119-21 sec. 81001 sets Direct Unsubsidized annual limits of $20,500 for a graduate student and $50,000 for a professional student, and aggregate limits of $100,000 and $200,000, for periods of instruction beginning on or after July 1, 2026. It also ends Direct PLUS Loans for graduate and professional students and adds a lifetime maximum of $257,500. An interim exception turns off those annual and aggregate limits, the Parent PLUS limits, the lifetime maximum and the end of Grad PLUS for a student who, as of June 30, 2026, is enrolled in a program and has received a loan (or on whose behalf a loan was made) for it, for the lesser of three academic years and the time left in the program; it stops applying if the student withdraws or otherwise ceases to be enrolled in the program (34 CFR 685.203(j)(4)).
Did Pub. L. 119-21 change how subsidized loans work?
When we checked on November 2, 2026, 34 CFR 685.207, which holds the in-school and grace-period interest rules, still read as quoted on this page, and 685.203(a) listed $3,500, $4,500 and $5,500 as the annual subsidized limits for undergraduates. Sec. 82002 ends unemployment and economic hardship deferments for loans made on or after July 1, 2027 (34 CFR 685.204(f)(1)(ii) and (g)(1)(ii)).
Related pages
Sources (checked November 2, 2026): Federal Register, 91 FR 57581 (September 10, 2026): Annual Notice of Interest Rates for Fixed-Rate Federal Student Loans · Federal Register, 91 FR 10084 (March 2, 2026): the same notice for loans first disbursed July 1, 2025 to before July 1, 2026 · 34 CFR 685.200, Borrower eligibility (eCFR) · 34 CFR 685.202, Charges for which Direct Loan Program borrowers are responsible (eCFR) · 34 CFR 685.203, Loan limits (eCFR) · 34 CFR 685.204, Deferment (eCFR) · 34 CFR 685.207, Obligation to repay (eCFR) · Pub. L. 119-21, sec. 81001 (loan limits) and sec. 82002 (deferment; forbearance), govinfo · 20 U.S.C. 1087e, Terms and conditions of loans (House Office of the Law Revision Counsel) · FSA electronic announcement GENERAL-26-28: FY27 Sequester-Required Changes to the Title IV Student Aid Programs (posted May 13, 2026; Internet Archive copy captured 2026-06-13) · FSA electronic announcement GENERAL-25-20: FY 26 Sequester-Required Changes to the Title IV Student Aid Programs (posted May 5, 2025; Internet Archive copy captured 2026-04-16) · FSA electronic announcement GENERAL-26-42: Update to List of Professional Degree Programs Due to Court Order (posted June 29, 2026, updated July 10, 2026; Internet Archive copy) · Pub. L. 116-260, div. FF, title VII, sec. 705 (repeal of subsection 455(q)), govinfo · Federal Register, 86 FR 31432 (June 14, 2021): Repeal of the William D. Ford Federal Direct Loan Program Subsidized Usage Limit Restriction · 34 CFR 685.200 as in effect on June 13, 2021, before paragraph (f) was removed (eCFR versioner)