Subsidized loan is a Direct Loan on which the federal government pays the interest while the borrower is enrolled at least half-time, during the grace period, and during certain deferments.
How it works
The aid office calculates need and certifies a subsidized amount up to the lesser of remaining need, the grade-level annual limit, and the aggregate subsidized cap. The loan is disbursed in at least two payments. While the student remains enrolled at least half-time, no interest accrues to the borrower. After the grace period, the borrower is responsible for all subsequent interest.
Example: an undergraduate with $4,000 of remaining need receives a $3,500 Direct Subsidized Loan (the first-year maximum). During four years of half-time-or-greater enrollment and the six-month grace period, the government pays the interest. The student begins repayment owing only the original principal plus any interest that accrues afterward.
How it differs
An unsubsidized loan accrues interest from the date of disbursement regardless of enrollment. A Pell Grant does not have to be repaid. Parent PLUS loans are never subsidized.
Common errors
Awarding a subsidized loan to a graduate student. Certifying more than remaining need as subsidized. Assuming interest never accrues on a subsidized loan after the student leaves school.
References
- 1. Federal Student Aid Subsidized LoansNeed-based interest subsidy
- 2. 34 CFR 685.200 eligibilityUndergraduate need requirement
Subsidized loan is a Direct Loan on which the federal government pays the interest while the borrower is enrolled at least half-time, during the grace period, and during certain deferments.