What is a subsidized student loan?

A subsidized student loan  – also known as a Direct Subsidized Loan – is a federal loan granted to borrowers with demonstrated financial need. The loan is only available for undergraduate students. To qualify, you must be enrolled at least half-time at an eligible school.  

Being subsidized, in this case, means that the United States Department of Education pays the interest accrued on your loan while you are in school and during periods of deferment (postponement) – like military service. The government continues to pay interest on your loans during the six-month grace period after you graduate. 

You pay less over time with subsidized loans. However, one catch with this type of loan is that the amount of funds you can borrow is relatively lower than a Direct Unsubsidized Loan. For example, a first-year student can borrow up to $3,500 in subsidized loans whereas the limit for an unsubsidized loan is $5,500. The subsidized loan limit for the entire undergraduate program is $23,000 and the unsubsidized limit is $57,000. 

You will know whether you qualify for a subsidized loan once you fill in the Free Application for Federal Student Aid (FAFSA®).