Direct Unsubsidized Loans

A Federal Direct Unsubsidized Loan is a type of low-interest loan offered by the U.S. Department of Education (DOE), and is sometimes called an Unsubsidized Stafford Loan or Direct Stafford Loan.

One way this type of federal unsubsidized loan differs from a Direct Subsidized Loan is that it can be awarded regardless of financial need. In addition, students at different levels of education can use these loans, while the subsidized versions are only issued to undergraduates. Review the following sections to learn more about Direct Unsubsidized Loans, how to apply for them and the terms surrounding repayment options.

Federal Direct Unsubsidized Loan Basics

Unlike federal subsidized loans, the Fed Direct Unsubsidized Loan is not awarded based on the student’s financial need. In addition, the borrower of a Direct Unsubsidized Loan is completely responsible for paying the interest on the loan, regardless of its deferment status. This interest will accrue, or build up, over the life of the loan, beginning from the date you receive the loan.

Federal Direct Unsubsidized Loans are available to undergraduates, graduate students and professional degree students alike. Your income level and whether you live on your own or with your parents are not used to determine eligibility for this type of loan. Direct Unsubsidized Stafford Loan repayment terms are similar to those for other types of federal financial aid and are explained below.

Borrowing Limits, Interest Rates and Other Terms

The limits on the amount you may borrow on a Federal Direct Unsubsidized Loan are determined by your school. There are annual loan limits for subsidized and unsubsidized loans, and total, or aggregate, loan amount limits. These Federal Direct Unsubsidized Loan limits depend on whether you are a dependent or independent student and what year you are in school. Dependent students are those who are claimed as a dependent on another person’s tax return. Independent students, however, file their taxes independent of their parents or guardians.

Related Article: FAFSA Dependency Status

If your parents are not able to get a Direct PLUS Loan, or you are studying in certain graduate/professional health profession programs, you may qualify to receive a larger amount in Direct Unsubsidized Loan funds.

  • Dependent Students (except students with parents who cannot get PLUS loans)
    • First-year undergraduate: $5,500
    • Second-year undergraduate: $6,500
    • Third-year and beyond undergraduate: $7,500
    • Aggregate loan limit: $31,000
  • Independent Students (and students with parents who cannot obtain PLUS loans)
    • First-year undergraduate: $9,500
    • Second-year undergraduate: $10,500
    • Third-year and beyond undergraduate: $12,500
    • Graduate/professional students annual limit: $20,500
    • Aggregate loan limit for undergraduates: $57,500
    • Aggregate limit for graduate/professional students: $138,500

If, over the course of your studies, you receive a Direct Unsubsidized Loan and other federal financial aid that pushes you to the aggregate limit, you will not be able to receive new financial aid. However, if you repay your loans enough to fall below the aggregate limit, you could borrow again—up to the aggregate loan limit.

Federal Direct Unsubsidized Loan interest rates are fixed while you remain in college, but you do not usually have to start making payments until after you graduate. For loans issued on or after 7/1/2018 and before 7/1/2019, the interest rate was set at 5.05 percent for undergraduates and 6.6 percent for graduate or professional degree students. An additional 1.062 percent loan fee applied to each loan issued during that timeframe.

How to Apply and Receive a Direct Unsubsidized Loan

Before applying for a Federal Direct Unsubsidized Loan, make sure that you are enrolled in a degree or certificate program at a school that participates in the Direct Loan program. To apply for a Direct Unsubsidized Loan, you must be enrolled at least half-time and submit a completed Free Application for Federal Student Aid (FAFSA) form. A financial aid counselor at your school will create a financial aid package for you that will include the loan and other types of federal and nonfederal aid that may work for you.

After processing your application, the loan servicer will contact you about completing entrance counseling and signing the loan contract, or promissory note. The direct unsubsidized loan servicer will keep you updated on the status of your loan. Your school will first apply your loan funds to your general account to cover tuition, room and board and other fees or charges. If any funds are left, it will be returned to you to use on other school-related expenses. All funds received from federal financial aid must be used for education expenses.

Federal Direct Unsubsidized Loan Repayment Terms

Each recipient of a Federal Direct Unsubsidized Loan can work with the loan servicer and college financial aid counselor to work out a payment plan that is acceptable to both parties. Plans to repay a direct unsubsidized loan include the following:

  • Standard Repayment Plan: You make a fixed amount payment each month for a certain timeframe.
  • Graduated Repayment Plan: Your federal unsubsidized loan payments start off small, then increase through the years.
  • Extended Repayment Plan: May have fixed or graduated payments but a longer timeframe to pay off your federal unsubsidized loan.
  • Pay As You Earn Repayment Plan (PAYE) or Revised Pay As You Earn Repayment Plan (REPAYE): Payments are recalculated annually depending on your income and family size.
  • Income-Based Repayment Plan: Monthly income-based loan payments are a certain percentage of discretionary income and are adjusted according to income and family size

If your Unsubsidized Stafford Loan is part of a financial aid package that includes other federal student loans, you may be eligible to consolidate them into one Direct Consolidation Loan. Folding your Direct Unsubsidized Loan into a consolidated loan helps you simplify the repayment process by paying one monthly note each month instead of keeping up with monthly payments to several different lenders.

Related Article: Income-Driven Student Loan Repayment

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