Direct Subsidized Student Loans

direct subsidized loan

Many students may need some help paying for school. College costs may be high. Many students may not have jobs to help cover those costs. That is where direct subsidized loans could help. These federal subsidized student loans may pay for many school costs. They may also help students to put off repaying the loan while they are in school. These types of loans are typically called subsidized student loans. It is important to understand these loans fully before borrowing one. Financial aid may be available to those who qualify.

What Is a Direct Subsidized Loan?

Students may pay for some of their higher education costs with subsidized loans. These are federal loans. The term “subsidized” refers to the repayment. The student usually does not incur any interest on the loan while they are in school. No interest builds on this student loan during that time. The student must meet specific requirements. The student must be attending an accredited institution for at least half time.

Students may learn about various types of student loans. Subsidized and direct unsubsidized are two types. It is typically important to know the difference when applying. These loans come from the U.S. Department of Education who set the eligibility requirements.

Another important term relates to the “Direct” component. A direct loan simply means the U.S. federal government is providing the loan to the student. A federal direct loan is another term for this. By comparison, a private loan is from a private or traditional lender, like your local bank. Federal direct loans are those that come from the government to typically cover the cost of your school. These come from the U.S. Department of Education. A direct loan program is generally one of the most common types of ways to pay for higher education costs.

What Is the Difference Between a Subsidized Loan and a Unsubsidized Student Loan?

Direct subsidized loans tend to be a better choice for some students. They may help students with better terms than other loan options. With subsidized loans, the government may pay interest on the loan while the student is enrolled. These loans may be suitable for those with financial need. Direct unsubsidized loans are also federal loans. They are not based on need. Students hold responsibility for the interest on these loans. Interest starts accruing and starts adding to the principal loan amount while the student is in school.

Moreover, many students could qualify for either. That is why it is so important to know the differences. It is also important to know what is perfect for you. For either type of loan, students must be eligible. Students fill out the Free Application for Federal Student Aid or FAFSA. This application gathers info about the student’s and family finances. 

How to Apply for a Direct Subsidized Student Loan?

In a direct subsidized loan, the federal government makes payments on the loan towards the interest that builds. This only applies when a student is enrolled at least half time in the school. This means the student typically does not pay interest on the loan while in school. The interest typically does start to grow at that time, though. The government may help cover the interest only on these loans. It often does not cover the actual amount borrowed. The student may repay that later.

Direct subsidized loans are often for people who may have lower incomes. They are typically also for undergraduate borrowers. They may not be generally available to grad students.

The school will usually determines how much of a loan the student is eligible for at the time of application. The amount the student borrows through the loan may not be more than their financial need.

Direct subsidized loans often do not require payment during the college enrollment period. The student may need to start making payments six months after leaving school. They may choose to make payments if they would like to. Payment is typically not owed until they are out of school. The benefit is that the student may be, hopefully, working in their career choice. That could make it possible for the student to start making payments on their loans.

How Do I Qualify for Subsidized Loans?

Another key factor usually includes eligibility. The longest eligibility period is 150 percent of the length of their college program. That means if the student is attending a four year undergrad program, they may receive loans for up to six years. This allows a student to continue to obtain funds for a longer period of time.

There may be some cons to direct subsidized loans. Students who are considering them, need to recognize these limitations. First, these loans are only available for undergrad students. Graduate students generally cannot receive them at all.

Second, the loans are available to those who can demonstrate financial need. If a student cannot do that, he or she cannot may not obtain the loan. This can may happen if a parent earns too much money. The FAFSA information determines this. Students whose family earns too much may not be eligible for this type of financial aid at all.

There is also a loan limit to consider. The annual loan limit for these loans is lower than for direct unsubsidized loans. That may limit the access to funds to cover all college costs for some students.

What are the Pros and Cons of Direct Subsidized Loans?

There may be a lot of benefits to direct subsidized loans. For example, the government is paying a portion of the loan cost for you. That means the student may end up paying less on their student loans over time.

Sometimes students may need help making payments on their loans later. This may happen after a student graduates. He or she may not have the funds to make payments on time. They may put the loan into deferment at that time. They may also choose to put the loan into forbearance. Interest may be paid by the government during these periods of time as well. It may also apply to some instances of repayment plans. The student typically does not have to make interest payments. The federal government does during this time. Once this period ends, the student could go back to making interest and principal payments again.

Direct subsidized loans often do not require payment during the college enrollment period. The student may need to start making payments six months after leaving school. Payment is typically not owed until they are out of school. The benefit is that the student may be, hopefully, working in their career choice. That could make it possible for the student to start making payments on their loans.

Another key factor usually includes eligibility. The longest eligibility period is 150 percent of the length of their college program. That means if the student is enrolled in a four year undergrad program, they may receive loans for up to six years.

Cons

There may be some cons to direct subsidized loans. First, these loans are only available for undergrad students. Graduate students generally cannot receive them at all. Second, the loans are available to those who can demonstrate financial need. If a student cannot do that, he or she cannot may not obtain the loan. This can may happen if a parent earns too much money.

The FAFSA information determines this. Students whose family earns too much may not be eligible for this type of financial aid at all. There is also a loan limit to consider. The annual loan limit for these loans is lower than for direct unsubsidized loans. That may limit the access to funds to cover all college costs for some students. Subsidized loans are capped at $23,000 for 2020. 

What is a Direct Unsubsidized Loan?

Direct unsubsidized loans are federal student loans for undergrad and graduate students. You are entirely responsible for paying the interest while you're in school and after you leave. Students generally still need to complete the FAFSA to be eligible for them. They are typically not need based. That changes some of the terms of these loans.

The federal government typically does not pay any of the interest on these loans. As with all loans, interest begins to accrue when the loan is obtained. That includes while the student is in college. Students may remain responsible for the interest while in school. They may be also responsible for it while the loans are in deferment or forbearance.

Students usually do not have to make payments on the interest during the time they are in school. The interest simply is added to what is owed after graduation. This means when a student graduates, he or she makes loan payments that include both the principal and the interest. This makes those payments higher.

For example, a student borrows $2,000 using this type of loan and assuming an interest rate of 2.75 percent. They often do not make payments towards the loan during their time in school. Your student loan debt could build up. They must repay the $2,000 as well as the $247 of interest in that first year. The student now owes $2,247 for the unsubsidized loan.

What is the Borrowing Process for Subsidized Loans?

For students who wish to be considered for subsidized loans, the first step is to complete the FAFSA. The school’s financial aid office may then determine the eligibility for the program. Students typically receive an award letter outlining their financial aid information. They also state the amount a student may borrow.

Students may not borrow more than they need to pay for their education. They may not borrow more than the maximum loan amount allowed for the type of study the student is receiving either. These loans typically have a fixed interest rate. It does not change from the first day until the final payment is made. No payment is typically made by the borrower during their time in school. Students may choose to make payments during this time.

The student’s award letter may also outline direct unsubsidized funds the student qualifies. It is possible to use both types of loans to cover the cost of education. The loan limits apply to the total amount of both direct student loan options.

How Much Direct Subsidized Loans Can I Borrow?

First year students who are in a program that is at least one full academic year may typically borrow up to $5,500. Of that amount, just $3,500 could be in subsidized loans. After the first year, students may typically borrow up to $6,500. The remainder of your program must be at least another full academic year to qualify for this. Just $4,500 of this amount may be from subsidized loans.

In the third year, typically $7,500 is available. The student must have at least another full academic year to complete to receive this amount. Of it, $5,500 may be from subsidized loans. This amount typically applies for the four year as well. Students may determine how much they may borrow by turning to their financial aid office. If you are unsure about your qualifications, they may help with this, too. Direct subsidized loans tend to offer a bigger loan limit each year than unsubsidized loans.

How Are Direct Subsidized Loans Distributed?

Applying for financial aid like these loans is usually an easy process. The first step is to complete the FAFSA. Then, you may work with your school to receive an award letter. Once you accept the subsidized or unsubsidized loans, the loans are distributed right to the school. Many schools are heavily involved in the process. They may help you determine your financial aid every step of the way.

All federal student loans are sent right to the school on your behalf. The funds may go to cover the costs you owe for the school. That includes your tuition and school fees. In some cases, this is may be done through multiple disbursements. You may receive direct subsidized and unsubsidized loans at different times. The two amounts together will typically equal the award you were provided.

The school may also set up the payment date. This is the date when the funds are applied to your account. Some schools may align this with the type of degree you are enrolled in. Most of the time, schools follow the rules set by the federal government on how this applies. You should be told this information when you enroll in the program as well.

How Can I Defer My Student Loans? 

Undergraduate students likely have numerous benefits when choosing direct subsidized loans, as noted. Yet, one of the biggest advantages of these loans is may be that you could enroll in school, pay for your education, and may not having to worry about making payments during the time you are in school. That is because this loan program typically offers in school deferment. As long as you are enrolled in higher education within the program you’ve selected half-time, you typically do not have to make payments on your loan. Deferment periods may be the same for both subsidized and unsubsidized loans.

Is There a Grace Period for Direct Subsidized Loans?

Once you complete your degree program or stop going to school, your grace period begins. This is typically the six month time frame you receive until you have to start making payments on your loan. During this time, no payment is due, but you may make payments if you decide to do so. A six month grace period may be one of the most important tools these loans offer. They allow you the opportunity to complete school, find pursue a job, and start earning money that you can may then use to repay your loans.

Direct Loan Repayment Plans 

There are typically a range of loan repayment plans available. You  may be able to choose one that is perfect for you. While it may be most affordable to pay off as much of your loan as possible right away to reduce interest costs, it is also important to have a payment you could afford. You will may be given the option to choose a repayment plan that is perfect for you before that six month grace period ends. Those that do not choose a specific repayment plan may be placed in the Standard Repayment Plan. This typically allows you to make payments at a fixed rate of at least $50 each month. It may continue between 10 to 30 years. Payment options may be flexible to meet your needs.

When the time comes to pay your loan back, you may pay the entire loan fee. That is the entire amount you borrowed to pay for school. Remember, with direct subsidized loans, you typically do not have to pay any interest that applies up until that point. However, interest may start building when you need to begin making payments. You may need to pay that interest and the principle you borrowed at that time.

Direct loan repayment may be confusing. You should know the interest rate in advance of obtaining the loan. You should have some idea of what your monthly payment will may be at this time as well. There are also typically loan fees that may be applicable. This includes an origination fee. This amount is usually deducted from the amount you borrow. These fees which range in terms of how much based on when you obtain the loan are deducted from how much the school received.

What Else Should You Know About Subsidized Student Loans?

If you are looking for a way to pay for your higher education costs, a direct subsidized loan are typically the first step. There is usually no need to apply with a credit history or a cosigner. These loans are typically never based on your credit history. Even first time borrowers can may obtain the funds they need. This is much unlike private loans that may require these loans. Also, note that these may be referred to as Stafford loans or direct Stafford loans. These terms are interchangeable.

Choosing the Perfect Loans for You

When you are ready to enroll in college, recognize that applying for direct subsidized loans are likely to be a part of the process. These typically have the lowest interest rate and the easiest reasonable qualifications. They may be more affordable than many private student loans. Start with direct subsidized student loans as these typically allow the government to cover the cost of interest. Then, consider unsubsidized student loans before you choose private student loans.

You may also want to talk to your school about other ways to reduce what you owe. Work study may be one option. Your financial aid office may offer insight on other options available, including Direct Plus Loans. This may be very helpful for most many students, including dependent undergraduate students.

A federal direct subsidized loan is just one way for you to help cover the cost of your college education. The terms and interest rates, as well as the fees and loan amounts, may change over time. However, these loans provide you with an affordable way to secure the funds you need to pay for your educational needs. For that reason, many students should look into them apply for the FAFSA, and then select the best loans for their needs. Work to reduce costs by ensuring repayment options fit your budget. Remember that entrance counseling and the financial aid office may help you with any questions and concerns you have regarding these loans.