Direct PLUS Loans are unsubsidized. The federal government does not pay any of the interest at any point in the life of the loan, so interest starts building on the day of the first disbursement and keeps building through school, deferment, and forbearance until the balance is paid off. That is the single biggest financial difference between a PLUS Loan and a Direct Subsidized Loan, and it shapes almost everything else about how these loans behave.
What Unsubsidized Actually Means in Dollars
Under the William D. Ford Federal Direct Loan Program, every federal student loan is either subsidized or unsubsidized. Direct Subsidized Loans are limited to undergraduates with financial need, and the government covers the interest while the student is enrolled at least half-time, during the six-month grace period after leaving school, and during certain deferment periods. Direct PLUS Loans get none of that help.1eCFR. 34 CFR Part 685 — William D. Ford Federal Direct Loan Program
Because interest accrues continuously, a PLUS Loan that sits untouched during a graduate program or an undergraduate’s four years of enrollment is quietly growing the whole time. If you do not pay that interest as it builds, it eventually capitalizes, meaning the unpaid interest is added to your principal. From then on, you pay interest on a larger balance, and the total cost of the loan climbs meaningfully above the amount you originally borrowed.
This is the practical takeaway of the unsubsidized label: the sticker amount of a PLUS Loan is not what you will repay. You will repay the principal, plus interest accrued from day one, plus interest on any of that interest that gets capitalized.
The Current Interest Rate and Origination Fee
The interest rate on a Direct PLUS Loan is set once a year based on the 10-year Treasury note auction and stays fixed for the life of that specific loan. For loans first disbursed between July 1, 2025, and June 30, 2026, the rate is 8.94%, calculated from the May 2025 Treasury auction yield of 4.342% plus a statutory add-on of 4.60%. Federal law caps the PLUS rate at 10.50% no matter how high Treasury yields go.2Federal Student Aid. Interest Rates for Direct Loans First Disbursed Between July 1, 2025 and June 30, 2026
On top of interest, an origination fee is deducted from each disbursement before the money reaches the school. For PLUS Loans with a first disbursement between October 1, 2025, and September 30, 2026, that fee is 4.228%.3Federal Student Aid. FY 26 Sequester-Required Changes to the Title IV Student Aid Programs Borrow $10,000 and roughly $9,577 reaches the account. You still owe interest on the full $10,000, at 8.94%, starting the day it disburses.
How to Keep Interest From Ballooning Your Balance
Since the government will never pay any interest on a PLUS Loan, the borrower has one lever: pay interest as it accrues rather than letting it capitalize. Interest paid during enrollment or a deferment period never gets added to principal, which keeps the loan from quietly growing while a student is still in school.
The alternative is to let interest accumulate. That is allowed. But when the loan enters repayment (or a deferment ends, or a forbearance ends), the accumulated interest capitalizes and becomes part of the principal you owe going forward. From that point on, every future interest calculation runs against the higher balance.
When Repayment Begins, and Why It Matters Here
Because the loan is unsubsidized, when repayment starts affects how much interest has already accrued by the time you begin paying.
Grad PLUS Loans
Graduate and professional borrowers do not have to pay while enrolled. Repayment begins after the borrower leaves school or drops below half-time enrollment, following a six-month post-enrollment deferment if requested. Interest, however, accrues throughout enrollment and through that six-month window, and any unpaid amount capitalizes when repayment starts.
Parent PLUS Loans
Repayment on a Parent PLUS Loan begins as soon as the loan is fully disbursed. A parent can request deferment while the student is enrolled at least half-time and for six months after the student graduates or drops below half-time; without that deferment, payments are due while the child is still in school.4Federal Student Aid. Direct PLUS Loan Basics for Parents Deferring is convenient, but it does not stop the interest clock. On an unsubsidized loan, deferment just delays payments; it does not pause the cost.
The Tax Deduction on Interest You Pay
Interest paid on both Parent PLUS and Grad PLUS Loans can qualify for the student loan interest deduction, which reduces taxable income by up to $2,500 a year. You do not have to itemize; the deduction is taken as an adjustment to income.5Internal Revenue Service. Tax Benefits for Education: Information Center
The deduction phases out at higher incomes. For the 2026 tax year, the phaseout begins at $85,000 of modified adjusted gross income for single filers and $175,000 for joint filers, disappearing completely at $100,000 (single) and $205,000 (joint).
One detail matters specifically for Parent PLUS borrowers: only the person legally obligated on the loan can claim the deduction. If a parent took out the loan, the parent claims the interest, not the student, and only if the parent’s income is under the phaseout.
The Bottom Line
PLUS Loans are unsubsidized in every phase of their life. Nothing about the program subsidizes interest for anyone at any time. That makes them more expensive than a Direct Subsidized Loan of the same size, and the gap widens the longer you let interest accrue without paying it. If you borrow a PLUS Loan, treat the interest rate as running from disbursement day, and decide early whether you will pay the interest as it builds or accept that it will capitalize into a larger principal later.