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    What Are Direct Unsubsidized Loans?

    Judy Miller
    Judy Miller

    A Direct Unsubsidized Loan, also known as a Federal Unsubsidized Loan is a loan offered via the Direct Loans program from the Federal Government.

    It offers students a fixed-rate of interest and flexible payment terms. Any student, whether a graduate or an undergraduate, can apply for this loan given there is no need to prove financial hardship.

    Eligibility Requirements

    To be eligible for an unsubsidized student loan, you need to fill in the FAFSA form. Based on the application, you’ll be notified if you’re eligible for one. The mandatory requirements for this loan are:

    - You’ve to be a citizen of the United States, or an eligible non-citizen.
    - You’ve a high school diploma or equivalent certification.
    - You’re enrolled in an eligible program or college at least half-time of the academic year.
    - You’ve not defaulted in any existing federal loans.
    - You meet all other requirements for federal assistance.

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    How To Apply?

    The process starts with filling in a FAFSA form. 

    1. Once your FAFSA is submitted, the school’s financial assistance office will review it and let you know if you’re eligible for federal aid.
    2. Contact the school’s office and get the financial aid accepted.
    3. Sign the Master Promissory Note (MPN) and other necessary paperwork.

    Interest Rates And Fees

    The interest charged on Federal Direct Unsubsidized Loans is fixed, meaning you’ll pay the same rate of interest over the term of your loan. For undergraduate loans disbursed between July 1st, 2019 to June 30th, 2020, the rate of interest is 4.53%. 

    Loans for graduates for the same period has a fixed interest rate of 6.08%. The fees charged on this loan for the period starting from October 1st, 2019 to September 30th, 2020 is 1.059%. 

    Note: Owing to the COVID-19 situation, all unsubsidized loans since 2010 qualify for payment suspension. Interest and charges won’t be accumulated for this period, and missing payments for this period won’t impact your credit score. For more details, visit our page about relief options.

    How Much Unsubsidized Loans Can I Get?

    The actual amount of loans which you can obtain every academic year will be determined by your school. The approved limits vary by your choice of school and your status (dependent or independent student).

    The below chart depicts the limits for unsubsidized loans for students whose parents aren’t eligible for Direct PLUS loans :

    Academic YearDependent Student LimitIndependent Student Limit
    1st Year (Undergraduate)$5,500$9,500
    2nd Year (Undergraduate)$6,500$10,500
    3rd Year and Beyond (Undergraduate)$7,500$12,500
    Professional or Graduate Student Annual LimitN/A$20,500
    Aggregate Loan Limit$31,000$57,500 (Undergraduates)
    $138,500 (Professional/Graduate)

    You are not eligible for additional loans if the aggregate loan amount exceeds the limit. If you are participating in a medical professions program, talk to the financial support office of your school for more details on the annual and aggregate limits.

    How Do I Receive And What Can I Use The Funds For?

    If you apply for the first time, before you collect the funds, you’ll have to attend an entry consultation session. If eligible, your student account with your school will receive the funds. 

    The Federal Government ideally transfers the funds directly to the student account in two installments. The total sum will be transferred in the following order:

    - Tuition and fees 
    - Room and board 
    - Additional school fees 

    If there are extra funds in your school account after all of the aforementioned charges have been applied, your school is liable to transfer this amount directly to you within 2 weeks, unless you authorize the school to hold it for future expenses.

    What Are The Eligible Repayment Terms?

    Several repayment plans are available to meet the individual needs of borrowers. Your federal loan service provider will help you understand the choices for eligible repayment options. In general, depending on the repayment term you choose, you will have 10 to 30 years to repay your loan. 

    Depending on your financial health, other available repayment terms are :

    • Standard Repayment Plan where you’ll be making fixed payments to ensure you pay off the loan within 10 years.
    • Graduated Repayment Plan where you’ll be making comparatively lower payments at the beginning. This monthly payment will gradually increase, ideally every two years.
    • Extended Repayment Plan where you’ll be making standard or graduated repayments ensuring that you clear off the total outstanding within 25 years.
    • REPAYE Plan where your monthly payments will only be 10% of your discretionary income.
    • PAYE Plan where your monthly payments will only be 10% of your discretionary income, but never more than what you would ideally pay with a standard repayment plan.
    • IBR (Income-Based Repayment) Plan where your monthly payments range between 10-15% of your discretionary income.
    • ICR (Income-Contingent Repayment) Plan where your monthly payment will be less than 20% of your discretionary income.
    • ISR (Income-Sensitive Repayment) Plan where you’ll pay based on your monthly income, but with the stipulation that you’ll clear the loan within 15 years.

    When Do I Have To Make The Payments?

    You will have a six-month grace period until you are forced to begin the refunds after you graduate or leave school, or drop below half-time enrollment. During this time your loan representative will provide you with repayment details and notify you of your first due date for payment. Typically, you have to make consistent monthly payments.

    Keep in mind that interest accrues during this grace period or if you request deferment while in school, and it will be added to the principal (also called capitalization).

    FAQ

    Do I have to pay back unsubsidized loans?

    Yes,

    Once you graduate or leave school and the 6-month grace period expires, you’re bound to repay the loan unless you can prove financial instability or meet other preset criteria for forbearance or forgiveness.

    Can I pay off the loan while being in school?

    Yes,

    You can pay off the loan while in school if you have the financial strength. If you don’t, interest will be accumulated, which will further be added to the principal. Speak to your lender and choose between interest-only or standard repayment.

    How can I get my limit increased?

    The Federal Government has set a limit to the annual and aggregate limits of unsubsidized loans. However, if you think you need to increase your loan’s limit, speak to the financial aid office of your school.

    What if I have a problem paying the loan?

    There are a lot of repayment plans to suit your requirement. If you think you’re having difficulty repaying your loan, you should immediately speak to the concerned lender so that they can help you choose the right option.

    Is it possible to cancel?

    Yes,

    You can cancel your loan in full or a part of it any time by notifying your school before the funds are disbursed. In some cases, you can also cancel it after the funds are released.