How To Qualify For Subsidized Student Loans

Last Updated on December 15, 2022

Are you looking to qualify for subsidized student loans? Here’s how.

Subsidized student loans are some of the most common types of federal loans available. You can get a subsidized student loan if you’re a dependent student or an independent undergraduate, but not if you’re a graduate student. Subsidized loans are an option if your family’s income is below a certain threshold, which is determined by your dependency status and the number of people in your household. If this is you, then it’s time to start thinking about how to qualify for these types of financial aid.

In order for someone to qualify for a subsidized student loan, they must meet the following criteria:

-They must have financial need (defined by the school)

-They must be enrolled at least half-time (defined by the school)

How To Qualify For Subsidized Student Loans

Direct Subsidized Loans

A Direct Subsidized Loan is a great financial option to help make education more affordable for students. The Federal Subsidized Loan is a needs-based program.

It targets those students who demonstrate the most financial need. The loans are primarily available to undergraduates. However, graduates in specific medical professional programs may qualify for the loan.

With this loan, the U.S. Department of Education pays the interest on the loan during the borrower’s grace period. There are annual and aggregate loan limits for the program, and once a borrower exceeds that amount, they are no longer eligible to receive further subsidized loans. Once they leave school, borrowers have several options to repay the loan, each of which corresponds to their current income and financial situation. See below for detailed information on Direct Subsidized Loans, how to qualify and the steps required to apply for one.

What is a Direct Subsidized Loan?

A Direct Subsidized Loan is a federal loan made to students in a program of study leading towards a degree or certificate at an approved school. Federal Subsidized Loans are granted based on a student’s financial need. With this type of loan, the U.S. Department of Education pays the interest on the loan during the student’s grace period. The grace period includes times when the student is enrolled at least half-time, the first six months after school and during periods of deferment.

The student’s school determines the loan amount based on the information entered on the students Free Application for Federal Student Aid (FAFSA). The loan may be used for expenses related to the student’s education, such as:

  • Tuition and fees
  • Books
  • Dependent childcare
  • Transportation
  • Purchase or rental of a personal computer

The funds are disbursed each semester. Payments are sent directly to the school who then applies the money to the student’s account. If there is a balance after paying expenses, the school sends the balance to the student. Not all schools participate in the Direct Subsidized Stafford Loan program, and students must contact their school to determine if the loans are available.

A Direct Subsidized Loan has many benefits over private loans. Federal loans have a fixed interest rate while private loans may have a variable interest rate, which ultimately increases the cost of the loan. Students do not need to pass a credit check with federal loans, and the loans do not require a co-signer (except PLUS Loans). Also, borrowers may consolidate their Direct Subsidized Loans at the end of the loan term. Consolidating loans means the student makes one payment for their loans rather than paying several private lenders for each loan they receive.

Direct Subsidized Loan Eligibility Rules

The Federal Direct Subsidized Stafford Loan is only available to undergraduate students. Also, the applicants for a Direct Subsidized Loan must be enrolled at least half-time a program that leads to a degree or certificate. When applying, students must meet the general eligibility requirements for federal student aid as follows:

  • Be a U.S. citizen or eligible non-citizen
  • Possess a Social Security Number
  • Not in default on any federal student loans
  • Make satisfactory progress towards a degree or certificate

The Federal Subsidized Loan is a needs-based program. As such, students must demonstrate a financial need to qualify. The school uses the information on the student’s FAFSA to make the determination. When evaluating a student’s application, the school looks at the following information to determine what is known as the Expected Family Contribution (EFC):

  • Student’s annual income
  • Annual income for the student’s parent(s)
  • Amount of other financial aid the student receives

The school then calculates the applicant’s financial need by subtracting the EFC from the Cost of Attendance (COA). The remaining amount is the amount the student requires to pay for their education. Students are not able to qualify for federal loans above and beyond their financial need. If the school determines that the applicant’s income is too high to qualify, they must seek other sources of funding for their education such as other federal programs or private loans and scholarships.

Although the loans are primarily for undergraduates, there are special cases when graduate students qualify for the program. Those students in specific health fields are eligible for a loan. These students should contact their financial aid office to determine if their program of study qualifies for a Federal Subsidized Loan.

Maximum Loan Amount for a Federal Subsidized Loan

There is a limit on the amount of Direct Subsidized Stafford Loans a student may receive per academic year. The U.S. Department of Education also enforces an aggregate or lifetime loan limit on the amount of Direct Subsidized Student Loans that a student may receive. The loan limits are based on the student’s year of study as follows:

  • First Year: $5,500 for dependent students and $9,500 for independent students
  • Second Year: $6,500 for dependent students and $10,500 for independent students
  • Third Year and Beyond: $7,500 for dependent students and $12,500 for independent students

The aggregate loan limit for undergraduate students is $31,000 for dependent students and $57,000 for independent students. Once the student reaches the lifetime limit, they are no longer eligible to receive further Federal Subsidized Loans.

Graduate students in an approved program of study qualify for an annual $20,500 loan limit. The aggregate loan limit for graduate and professional degree students is $224,000.

Applicants for a Direct Subsidized Loan may get an early estimate of how much they qualify for by using the Early Aid Estimate calculator, otherwise known as FAFSA4Caster, on the Federal Student Aid website. The calculator is for students who are not ready to submit a FAFSA but who wish to see how much they would qualify for based on their current information. It is also a valuable tool for parents to forecast how much they will need to fund their child’s education.

How to Apply for a Direct Subsidized Loan

Applicants for a Federal Direct Subsidized Stafford Loan must apply for the loan using the FAFSA. The form collects information necessary for the school to determine the student’s eligibility and the Direct Subsidized Loan amount for which they qualify. To apply, students must submit information about their income as well as that of their parent(s). Information required on the FAFSA include:

  • Student’s full name
  • Date of Birth
  • Social Security Number
  • Income

The student must also list several schools they wish to receive their FAFSA. Once approved for the loan, the student must sign a Master Promissory Note (MPN). The MPN is a contract between the U.S. Department of Education and the student. The contract serves as the student’s agreement to repay the Federal Subsidized Loan under the terms outlined in the contract. Also, students must undergo entrance counseling once they are approved for the loan.

Repaying Federal Subsidized Loans

Applicants do not begin repayment of their Direct Subsidized Loan until after their grace period. Once the grace period a Direct Subsidized Loan ends, the loan servicer contacts the student to provide instructions on how to make payments. The loan servicer is who manages the loan by collecting payments and late fees, determining late charges and answering all questions related to the loan.

The loan payment consists of two components, namely the principal amount and the interest. The amount of interest is calculated based on the current interest rate for the loan. The interest rate amount is added on top of the principal payment.

Borrowers have several options for repaying their Federal Subsidized Loan based on their financial situation. In general, loans are repaid within 20 to 25 years based on the payment plan selected. The repayment options available are:

  • Standard – Under this plan, borrowers pay a fixed monthly amount for the duration of the loan term
  • Graduated – Loan payments are lower in the beginning to allow the student time to adjust to the new loan payment. The payment then increases over time to help accelerate paying off the loan.
  • Income-Based – With an income-based plan, the monthly payment varies based on the borrower’s current income.

Borrowers also have the option of consolidating their loans. First, understand what loan consolidation is before deciding if it is right for you. Consolidation helps borrowers combine their loans so that they make one payment for their Federal Subsidized Loan instead of payments spread out across multiple loans.

what is an unsubsidized loan

What Is an Unsubsidized Student Loan?

What Is an Unsubsidized Student Loan? article image.
  • What Is the Difference Between Subsidized and Unsubsidized Loans?
  • Pros and Cons of Unsubsidized Loans
  • How Much Can I Borrow With an Unsubsidized Loan?
  • How to Apply For an Unsubsidized Student Loan 
  • Are There Fees for an Unsubsidized Loan?
  • When to Start Paying Off Unsubsidized Loans
  • Keep an Eye on Your Credit
Student loans come in many different forms, and it can get a little confusing when comparing all of your financing options. Loans for higher education fall into two major categories: federal loans from the government and private loans from financial institutions.

An unsubsidized loan is a federal loan for undergraduates who are still in school and need help paying for tuition and other college expenses.

What Is the Difference Between Subsidized and Unsubsidized Loans?

Federal student loans, unlike private loans, are either subsidized or unsubsidized by the federal government. So what’s the difference?

Subsidized loans are available to undergraduate students only, and the government reserves them for students who demonstrate financial need. The U.S. Department of Education offers the best terms on these loans, paying the interest while you’re attending school at least half time, during the six-month grace period after leaving school, and during any loan deferment periods.

Unsubsidized loans, on the other hand, can be obtained by both undergraduate and graduate students and don’t require demonstration of financial need. Interest accrues on unsubsidized loans while you are attending school, during the grace period and during deferment. If you do not pay the accrued interest before you must start paying back the loan, that interest gets added to the loan’s total.

Pros and Cons of Unsubsidized Loans

Unsubsidized loans have several benefits and drawbacks to consider before you take one on.

Unsubsidized student loan perks include:

  • You aren’t required to demonstrate financial need. This can be helpful in many situations, such as when you’ve reached your borrowing limit on need-based subsidized loans and still don’t have enough to fully cover school costs.
  • Unlike subsidized loans, you can utilize these loans if you’re a graduate or professional student.
  • You can borrow more money than with a subsidized loan.
  • Unlike private loans, you can choose from multiple federal repayment plans, giving you more flexibility.
  • Additionally, while private loans require credit checks, unsubsidized federal loans (and subsidized federal loans) don’t check credit.

But there are some downsides to consider:

  • Interest starts accruing immediately. If you or your parents can’t make interest payments while you’re in school, that accrued interest is added to your loan’s principal, which increases the cost of borrowing. For that reason, you should try to pay all the interest on these loans before you leave school.
  • There are annual limits on how much you can borrow through federal loans—both subsidized and unsubsidized—so you may not be able to borrow as much as you need. In this case, you may be able to supplement with private loans.

How Much Can I Borrow With an Unsubsidized Loan?

The amount you can borrow with an unsubsidized student loan is determined by your school and is based on your year in school and dependency status.

The following chart shows the annual and aggregate limits for unsubsidized loans as determined by the federal government.

Borrowing Limits for Unsubsidized Loans
YearDependent StudentsIndependent Students
First-year undergraduate$5,500$9,500
Second-year undergraduate$6,500$10,500
Third-year undergraduate and beyond$7,500$12,500
Graduate studentNot Applicable$20,500
Unsubsidized aggregate loan limit$31,000$57,500 (undergrads)
$138,500 (grads)

How to Apply For an Unsubsidized Student Loan

First, make sure you meet the following criteria to qualify for an unsubsidized student loan. You must:

  • Be a U.S. citizen or national, or a permanent resident
  • Be enrolled on at a least half-time basis at an accredited institution
  • Have no loan defaults or owe a refund to any previous student loan or aid
  • Stay in good academic standing

Here’s how to apply:

  1. Fill out the Free Application for Federal Student Aid (FAFSA). The government and colleges use this form to determine financial aid packages. Make sure you submit it by the annual deadline.
  2. Go over your financial aid letter. You will receive a financial aid award letter from your school’s financial aid office listing the loan options you qualify for and explaining how to accept them. You may be approved for both subsidized and unsubsidized loans; you can then determine how much of the approved amount you will request (you do not have to take the entire amount you are offered if you don’t need it).
  3. Complete the paperwork and requirements to receive your loan. This entails signing a promissory note (the loan agreement). If it’s your first time receiving a federal loan, you’ll have to complete online entrance counseling to make sure you understand your responsibilities and obligations as a borrower.
  4. Receive your loan(s). When your loans come in, your school will put them toward your tuition, room and board (if you live on campus), or any other school fees. If there’s any remaining money, it will be given to you.

Are There Fees for an Unsubsidized Loan?

Yes, unsubsidized loans come with a percentage-based loan fee that’s deducted proportionately from each loan disbursement you receive. The fee rate depends on when you took out the loan: If it was first paid out on or after Oct. 1, 2019, and before Oct. 1, 2020, the loan fee is 1.059%. If the loan was first disbursed on or after Oct. 1, 2018, and before Oct. 1, 2019, the fee is 1.062%.

You’ll also pay interest in exchange for the benefit of borrowing. For undergraduate unsubsidized loans, the current interest rate is 4.53%, and for graduate, 6.08%. (These rates are for loans disbursed on or after July 1, 2019, and before July 1, 2020.) Fortunately, these interest rates are fixed and stay the same for the life of the loan.

When to Start Paying Off Unsubsidized Loans

Once you graduate from school, or you drop below half-time enrollment, you’ll get a six-month grace period before you’re required to start repaying your unsubsidized loan. During that time, your loan servicer will provide information on repayment and will let you know when you need to begin making your payments.

Federal student loans allow you to choose from a few different repayment plans; you might be assigned to one automatically, but you can change your plan anytime for free. If you’re not sure which plan would work best for you, ask your loan servicer to talk you through the options.

Regardless of which plan you pick, it’s vital to start paying off your student loans as soon as possible. Even if you’re not required to pay during a grace period, interest still racks up, so try to at least make payments to cover interest to prevent your debt from growing higher.

Whenever you can, pay more than the minimum you owe each month. This will lower your balance faster over time. If you overpay, the loan servicer may apply it to the next month’s payment, so you may need to explicitly ask them to apply it to the current month’s payment.

Lastly, if you have multiple student loans, make note of the ones with the highest balance and the steepest interest rate. If you’re able to pay more than the minimum, put it toward those loans first since that will help you save more money over time.

Keep an Eye on Your Credit

Student loans make a lasting impact on your credit, and the ramifications can be positive or negative depending on your actions. As you enter school, it’s smart to monitor your credit—which you can do for free with Experian—to get a sense of where it stands and how your student loans affect your credit. Making every payment on time will help your credit grow and improve.

About the author

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