Direct Subsidized Loans are federal student loans for eligible students to help cover the cost of higher education at a four-year college or university, community college, or trade, career, or technical school. The U.S. Department of Education offers eligible students at participating schools Direct Subsidized Loans and Direct Unsubsidized Loans.
What is a Direct Subsidized Loan?
The Direct Subsidized Loan is a federal student loan available to students with demonstrated financial need. Subsidized loans are among the least expensive loan options for students because the federal government pays the interest while the student is attending college on at least a half-time basis and during other periods of authorized deferment. This interest subsidy effectively gives the loan a zero percent interest rate during the in-school and other deferment periods. In contrast, the government does not pay the interest on unsubsidized Federal Stafford loans.
Direct Subsidized Loan Quick Facts
- Interest is subsidized while the borrower is in school
- Eligibility is based on financial need, as determined by the FAFSA
- Cumulative loan limit of $23,000
- Low origination fee of about 1%
Subsidized Loan Eligibility
Eligibility for subsidized Federal Stafford loans is based on criteria specified in the Higher Education Act of 1965. These include general eligibility criteria for federal student aid and loan-specific eligibility criteria.
To be eligible for any federal student aid program, the student must be:
- A U.S. citizen or eligible non-citizen
- Have received a high school diploma or the equivalent (e.g., GED)
- Enrolled at least half-time in an accredited academic program
- Not be in default on any existing federal student loan
- Have financial need as determined by the FAFSA
- Be an undergraduate student; Graduate students no longer qualify for subsidized Federal Stafford loans as of July 1, 2012.
How to Apply for Direct Subsidized Loans
To apply for a subsidized Federal Direct Stafford Loan, students must file the Free Application for Federal Student Aid (FAFSA). Once completed, students will receive a financial aid notification (award letter) from their school detailing how much they are eligible to borrow in subsidized loans.
Time Limit for Receiving Direct Subsidized Loans
If you are a first-time borrower on or after July 1, 2013, there is a limit on the maximum period of time (measured in academic years) that you can receive Direct Subsidized Loans. This time limit does not apply to Direct Unsubsidized Loans or Direct PLUS Loans. If this limit applies to you, you may not receive Direct Subsidized Loans for more than 150 percent of the published length of your program. This is called your “maximum eligibility period.” Your maximum eligibility period is generally based on the published length of your current program. You can usually find the published length of any program of study in your school’s catalog.
For example, if you are enrolled in a four-year bachelor’s degree program, the maximum period for which you can receive Direct Subsidized Loans is six years (150 percent of 4 years = 6 years). If you are enrolled in a two-year associate degree program, the maximum period for which you can receive Direct Subsidized Loans is three years (150 percent of 2 years = 3 years).
Because your maximum eligibility period is based on the length of your current program of study, your maximum eligibility period can change if you change to a program that has a different length. Also, if you receive Direct Subsidized Loans for one program and then change to another program, the Direct Subsidized Loans you received for the earlier program will generally count toward your new maximum eligibility period.
Certain types of enrollment may cause you to become responsible for the interest that accrues on your Direct Subsidized Loans when the U.S. Department of Education usually would have paid it.
Subsidized Loan Limits
Loan limits on the Direct Subsidized Loan are the same for dependent and independent students. Graduate and professional students are no longer eligible for subsidized Federal Stafford loans as of July 1, 2012. Previously they were eligible for up to $8,500 a year and $65,500 cumulative (including undergraduate subsidized Federal Stafford Loans).
Your school determines the loan type(s), if any, and the actual loan amount you are eligible to receive each academic year. However, there are limits on the amount in subsidized and unsubsidized loans that you may be eligible to receive each academic year (annual loan limits) and the total amounts that you may borrow for undergraduate and graduate study (aggregate loan limits). The actual loan amount you are eligible to receive each academic year may be less than the annual loan limit. These limits vary depending on
- what year you are in school
- whether you are a dependent or independent student
If the total loan amount you receive over the course of your education reaches the aggregate loan limit, you are not eligible to receive additional loans. However, if you repay some of your loans to bring your outstanding loan debt below the aggregate loan limit, you could then borrow again, up to the amount of your remaining eligibility under the aggregate loan limit.
Graduate and professional students enrolled in certain health profession programs may receive additional Direct Unsubsidized Loan amounts each academic year beyond those shown above. For these students, there is also a higher aggregate limit on Direct Unsubsidized Loans. If you are enrolled in a health profession program, talk to the financial aid office at your school for information about annual and aggregate limits.