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While the federal government once offered subsidized loans to graduate students, that is no longer the case. The Budget Control Act of 2011 eliminated subsidized loan eligibility for advanced degrees, restricting these interest-free benefits exclusively to undergraduate borrowers. Fortunately, graduate students still have several federal and private financing paths available.
Below, we take a closer look at how federal subsidized and unsubsidized loans differ, break down the current graduate borrowing limits, and explore the alternative loan options available to fund your advanced degree.
Key Points
• Since the enactment of the Budget Control Act in 2011, graduate students are no longer eligible for federal Direct Subsidized Loans.
• Graduate students may still qualify for federal Direct Unsubsidized Loans, which do not require proof of financial need but accrue interest during all periods.
• Grad PLUS Loans are no longer available to new graduate and professional borrowers, though there are some exceptions for existing borrowers.
• Graduate and professional students have an aggregate federal loan limit of $257,500 across all federal Direct Loans.
• Beyond federal loans, graduate students can consider private student loans from banks or credit unions, which often require a credit check and may offer varying terms.
What Are Subsidized Loans?
Federal student loans are offered through the U.S. Department of Education to help students cover the cost of higher education. Direct Subsidized Loans are available to undergraduate students who demonstrate financial need.
The federal government pays all interest on subsidized loans while you are in school at least half-time, during the six-month grace period after you leave school, and during certain periods of deferment. Outside of these periods, the borrower is generally responsible for making all principal and interest payments.
Subsidized vs Unsubsidized Loans
Federal Direct Unsubsidized Loans, on the other hand, are available to undergraduate and graduate students. Students do not have to demonstrate financial need to qualify for these loans.
For regular graduate programs, students may borrow up to $20,500 per year, with an aggregate cap $100,000. Students pursuing professional degrees can borrow up to $50,000 per year, with an aggregate cap of $200,000. Federal student loans are also subject to a lifetime Direct Loan borrowing cap of $257,500, which includes undergraduate and graduate borrowing.
Interest rates for all federal student loans are set by the federal government each year. For the 2026-27 academic year, the interest rate for Direct Unsubsidized Loans for both graduate and professional borrowers is 8.07%. The interest rate is fixed over the life of the loan.
To apply for federal student loans, you need to fill out the Free Application for Federal Student Aid (FAFSA®). Your school will use the information on this form to determine how much aid you are eligible to receive and present it to you in a formal financial aid offer (also known as an award letter). Your offer may include a combination of grants, scholarships, work-study, and federal student loans.
Alternatives to Subsidized Loans
In addition to unsubsidized federal loans, there may be other loans available that can help you pay for grad school.
Grad PLUS Student Loans
Effective July 1, 2026, the Federal Direct Graduate PLUS Loan program has been eliminated for new borrowers under the One Big Beautiful Bill Act (OBBBA). This policy change removes a key federal funding option that previously allowed graduate and professional students to borrow up to their program’s full cost of attendance.
For the 2026-27 academic year, the availability and requirements of these student loans depend entirely on your enrollment history:
• New borrowers: If you started a new graduate program on or after July 1, 2026, you are no longer eligible to take out a Grad PLUS loan. Instead, you must rely on Direct Unsubsidized Loans, which are now strictly capped at $20,500 per year for standard graduate degrees and $50,000 per year for specific professional programs.
• Legacy exception: If you received a federal student loan for your current program before July 1, 2026, you are generally grandfathered into the program. You may be able to continue to apply for Grad PLUS loans to cover your full cost of attendance for up to three academic years or until you graduate, whichever comes first.
Private Loans
Private student loans are offered by banks, credit unions, and online lenders. Unlike federal options, individual lenders determine your borrowing limits, repayment terms, and interest rates based largely on factors like your (or your cosigner’s) income and credit score.
While private loans can bridge the funding gap if you exhaust your federal loan limits, they typically lack key federal protections such as income-driven repayment and potential loan forgiveness programs. Consequently, they are generally considered a last resort for funding graduate school.
How Much Can You Borrow for Graduate School?
For graduate school, you can borrow a maximum of $20,500 per year for general graduate programs (like a Master’s or MBA) or up to $50,000 per year for designated professional degrees (like Medicine or Law) through federal Direct Unsubsidized Loans.
These federal loans are subject to total lifetime limits of $100,000 for general graduate studies and $200,000 for professional degrees. In addition, you cannot exceed an universal lifetime limit of $257,500 across all of your undergraduate and graduate federal student loans combined.
Many private lenders allow you to borrow up to your school’s total cost of attendance minus any other financial aid. This maximum limit includes tuition, fees, housing, books, and living expenses as certified by your university.
The Takeaway
While federal Direct Subsidized Loans are no longer an option for graduate students, funding is still accessible through Direct Unsubsidized Loans, institutional aid, scholarships, and private student loans. By comparing interest rates, borrowing limits, and repayment terms across these options, graduate students can develop a strategic financing plan tailored to their degree and financial goals.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
Does the U.S. Department of Education offer subsidized loans for graduate students as part of financial aid packages?
No, the U.S. Department of Education does not offer subsidized loans for graduate students. Under federal policy, Direct Subsidized Loans are strictly limited to eligible undergraduate students with financial need.
Graduate and professional students can still access federal financial aid, but they are restricted to Direct Unsubsidized Loans. Unlike subsidized options, unsubsidized loans are not need-based, and interest begins accruing immediately upon disbursement rather than being covered by the government while you are in school.
Are Grad PLUS Loans subsidized loans?
No, Grad PLUS Loans are not subsidized, meaning interest accrues while you are in school.
Furthermore, under recent federal policy changes, Grad PLUS Loans have been discontinued for new borrowers. Only existing graduate students who were already enrolled and borrowing under the program retain limited eligibility to finish their degrees. New graduate students must instead rely on Direct Unsubsidized Loans, which are subject to strict annual and lifetime caps.
Can you pay off subsidized loans before graduating?
Yes, you can pay off federal subsidized loans before graduation without penalty. All education loans, including federal student debt, allow for penalty-free prepayment.
Because the government covers the interest on Direct Subsidized Loans while you are enrolled at least half-time, any voluntary payments you make before graduation will apply directly to your principal balance. This reduces the overall amount that will begin to accumulate interest once your six-month post-graduation grace period ends.
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