Federal Student Loans Explained: Subsidized, Unsubsidized, PLUS

Federal student loans come in a few flavors, and the difference between them is mostly about who pays the interest while you are in school and how much you can borrow. For undergraduates, the two main types are Direct Subsidized Loans (based on financial need) and Direct Unsubsidized Loans (not based on need). Parents of dependent undergraduates can borrow Direct PLUS Loans. For loans first disbursed from July 1, 2026 to June 30, 2027, the fixed interest rate is 6.52% for undergraduate loans and 9.07% for PLUS loans. This guide explains each type, the limits for the 2026–27 year and how to think about cost.

Key takeaways

• Take grants and scholarships first. Loans have to be repaid with interest.
• A Subsidized loan is generally the best loan: the government pays the interest while you are enrolled at least half time and during certain other periods. Unsubsidized loans accrue interest from the first day.
• Federal loan rates are fixed for the life of each loan, set once a year by a formula tied to the 10-year Treasury auction.
• Annual and total limits apply, and they are different for dependent and independent undergraduates. Parent PLUS limits changed on July 1, 2026.
• Borrow only what you need. An award letter may offer more than you should accept.

The main loan types

Direct Subsidized Loans

Subsidized loans are for undergraduates who demonstrate financial need through the FAFSA. The main advantage is that the U.S. Department of Education pays the interest while you are enrolled at least half time, during a grace period after you leave school and during certain deferment periods. Your balance does not grow from interest during those times.

Direct Unsubsidized Loans

Unsubsidized loans are available to undergraduate and graduate students, and need is not required. Interest begins to accrue as soon as the loan is paid out. You can pay it while in school, or it is added to your balance (capitalized) when repayment begins, which makes the loan larger.

Direct PLUS Loans for parents

Parent PLUS Loans let a parent borrow on behalf of a dependent undergraduate. They are made to the parent, who is legally responsible for repaying them. The interest rate is higher than for student loans, and they involve a credit check. They are not a good idea to take without first looking at how much the student and family can realistically repay.

Graduate borrowing

Graduate and professional borrowing rules changed substantially for loans beginning July 1, 2026, including the availability of Grad PLUS Loans, which are now mostly limited to certain borrowers who were already enrolled and borrowing under the earlier rules. This guide focuses on undergraduates and parents. If you are a graduate student, check StudentAid.gov for the limits that apply to you.

Interest rates for 2026–27

According to the Department of Education’s announcement, loans first disbursed between July 1, 2026 and June 30, 2027 carry these fixed rates:

Loan type	Interest rate
Direct Subsidized and Unsubsidized, undergraduate	6.52%
Direct Unsubsidized, graduate or professional	8.07%
Direct PLUS (parents and graduate or professional students)	9.07%

The rates come from the high yield of the 10-year Treasury note at the last auction before June 1 (4.468% for this year), plus a fixed add-on that varies by loan type. The rate on each loan stays the same until it is repaid; a loan disbursed this year does not change if rates rise or fall next year. Loans also carry an origination fee, deducted from each disbursement, so you receive slightly less than you borrow. Check StudentAid.gov for the current fee percentage.

Borrowing limits for undergraduates

For Direct Subsidized and Unsubsidized Loans, the Department of Education’s loan-limit guidance lists these annual and aggregate limits for undergraduates. The annual and total limits for undergraduate Subsidized and Unsubsidized loans did not change on July 1, 2026.

Year in school	Dependent student (total, of which Subsidized up to)	Independent student (total, of which Subsidized up to)
First year	$5,500 ($3,500)	$9,500 ($3,500)
Second year	$6,500 ($4,500)	$10,500 ($4,500)
Third year and beyond	$7,500 ($5,500)	$12,500 ($5,500)
Aggregate limit	$31,000 ($23,000)	$57,500 ($23,000)

Dependent students whose parent is denied a PLUS Loan may qualify for the higher independent-student limits. Ask the financial aid office how this works at your school.

Parent PLUS Loans are now capped at $20,000 per year, and $65,000 in total, per dependent student, for new borrowers beginning July 1, 2026, according to the Department’s guidance. There are transition rules for parents and students who were already borrowing under the earlier rules, so your school’s financial aid office can tell you which limits apply to your family.

Remember that a limit is a ceiling, not a target. The right amount is the smallest amount that covers what grants, savings and work do not.

A worked example (illustrative)

Suppose a dependent student borrows the annual maximum at the Direct Subsidized and Unsubsidized limits each year for four years: $5,500, $6,500, $7,500 and $7,500, for $27,000 total, and later repays it at 6.52% over 10 years. These figures are illustrative.

• Monthly payment, 10-year standard repayment: about $307.
• Total paid over 10 years: about $36,800, so roughly $9,800 of that is interest.

If the same $27,000 carried a rate of 4.99%, the payment would be about $286 a month. Compare that to the monthly payment on a $10,000 balance at 6.52%, about $114 a month. Because the payment scales with the balance, every $1,000 you avoid borrowing saves about $11 a month on a 10-year plan at this rate.

The bigger lesson is about unsubsidized interest: on a $7,500 loan at 6.52%, interest accrues at roughly $489 a year while you are in school (before any payments), and that gets added to what you owe if you do not pay it as it accrues. Paying even part of that interest during school can reduce the total cost.

Our student loan calculator lets you test other balances and rates, and how much student debt is too much explains how to judge whether a number is manageable.

Federal vs. private loans

Federal student loans have protections that most private loans do not match: fixed rates, repayment plans that adjust to income, and options such as deferment or forbearance. They also do not require a credit check for undergraduate loans. Most advisers suggest using federal options first. If you do look at private loans, compare the rate, whether it is fixed or variable, and what happens if you cannot pay.

Repayment options for federal loans have been changing, and new options apply to loans made after July 1, 2026. Read the current repayment information at StudentAid.gov before you borrow.

Common mistakes

• Accepting the full offer automatically. The award letter shows what you are eligible for, not what you must take.
• Ignoring interest on Unsubsidized loans while in school. Interest does not wait for you to graduate.
• Treating a Parent PLUS Loan as the student’s debt. The parent owes it and the payments can strain retirement savings.
• Comparing schools by loan amount only. A smaller loan at a school with a low graduation rate can be riskier than a larger loan at a school where most students finish. See graduation and retention rates.
• Forgetting the origination fee. You receive slightly less than you borrow.
• Assuming rates are the same every year. They reset each July 1 for new loans.

What to do next

1. Complete the FAFSA; see FAFSA step by step.
2. Max out free money first: Pell Grants, institutional grants, scholarships.
3. Estimate repayment for the total you expect to borrow with the student loan calculator.
4. Compare typical debt and earnings at each school on its college page, and see the rankings for low-debt schools.
5. Read how to compare financial aid offers before accepting any loan.

This guide is general education, not individualized financial advice. Rates and limits are for the 2026–27 award year and change; confirm them at StudentAid.gov.