Subsidized Loans
Definition
Subsidized loans are a type of federal student loan where the government pays the interest while the student is in school at least half-time, during the grace period, and during any deferment periods.
Detailed Explanation
Subsidized loans are designed to provide financial assistance to undergraduate students who demonstrate financial need. The U.S. Department of Education pays the interest on a subsidized loan while the borrower is in school at least half-time, for the first six months after the borrower leaves school (referred to as a grace period), and during any authorized deferment periods.
This feature makes subsidized loans an attractive option for students who need to borrow money for college but want to minimize the cost of borrowing.
The amount a student can borrow is determined by the school and cannot exceed the student's financial need. The actual loan amount might be less than the maximum limit depending on the student's other financial aid awards.
Subsidized loans are part of the William D. Ford Federal Direct Loan Program, commonly referred to as Direct Loans.
Example
An undergraduate student demonstrates financial need and is awarded a subsidized loan of $3,500 for their first year of college. While the student is enrolled at least half-time and during the six-month grace period after graduation, the government pays any interest that accrues on this loan.
Key Articles Related To Subsidized Loans
Related Terms
Unsubsidized Loans: A type of federal student loan where the borrower is responsible for paying all the interest, including while they are in school and during grace or deferment periods.
Financial Need: The difference between the cost of attendance (COA) at a school and the Expected Family Contribution (EFC), used to determine eligibility for need-based aid.
Grace Period: A period after a student graduates, leaves school, or drops below half-time enrollment during which the borrower is not required to make loan payments.
Deferment: A temporary suspension of loan payments, authorized under certain conditions, during which interest does not accrue on subsidized loans.
Frequently Asked Questions
How do I qualify for a subsidized loan?
You need to complete the Free Application for Federal Student Aid (FAFSA) to determine your eligibility based on financial need.
What is the interest rate for subsidized loans?
The interest rate for Direct Subsidized Loans is set by federal law and can vary each academic year, but it is fixed for the life of the loan once disbursed.
Can I get a subsidized loan for graduate school?
No, subsidized loans are available only to eligible undergraduate students who demonstrate financial need.
What happens if I don't use the grace period?
You can begin paying your student loans, even during the grace period. The government will continue to pay the interest and your full payment will go towards reducing the principal.
Editor: Ashley Barnett
