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A Direct Subsidized Loan is a type of federal student loan available to students who demonstrate financial need. The federal government subsidizes this type of loan by paying the interest that accrues while the student is enrolled in school at least half-time and during qualifying periods of deferment, such as the grace period.

The Direct Subsidized loan is one of three federal student loans available to student borrowers. The others are the Direct Unsubsidized Loan, Direct PLUS Loan, and Direct Consolidation Loan. Read on for more information about the benefits of Direct Subsidized loans and details about other types of student loans available to eligible students.

What Are the Benefits of a Federal Direct Subsidized Loan?

Like other types of student loans, you will be responsible for paying back your Federal Direct Subsidized Loan after you finish school. Unlike many other student loans, however, having a Direct Subsidized loan means you won’t be responsible for paying interest while you are in school or during a six-month grace period after graduation (or during other deferment periods). The U.S. Department of Education subsidizes this type of loan by paying the interest on your behalf during those periods.

Since the government is paying the interest that accrues while you are in school and during the grace period, no interest will be added to your balance before you begin repayment. This might sound like a minor detail, but not having to pay interest while you are in school and for six months after you graduate can significantly reduce the overall cost of your loan.

Like an Unsubsidized Direct loan, you’re not obligated to make payments during school — and the interest rate is relatively low. For the 2023-24 academic school year the interest rate for a Subsidized or Unsubsidized Direct Loan is 5.50%.


💡 Quick Tip: You’ll make no payments on some private student loans for six months after graduation.

How Do You Apply for a Federal Direct Subsidized Loan?

To apply for a Federal Direct Subsidized Loan, you will need to complete the Free Application for Federal Student Aid (FAFSA). The FAFSA is available for free online, and contains questions about you and your family’s financial circumstances.

The information you submit through the FAFSA is transmitted to your school and then used to determine what types of aid (including federal loans, grants, scholarships, and work-study) you are eligible to receive. The FAFSA must be completed annually.

There is no credit check involved in applying for a Federal Direct Subsidized (or Unsubsidized) loan, and you don’t need to worry about having a certain credit score.

How Is Your Eligibility for a Federal Direct Subsidized Loan Determined?

After your FAFSA has been reviewed, your selected school will send you an award letter that tells you your total cost of attendance, the award money you’ve been given, and what federal aid programs and loans you qualify for based on your FAFSA information.

You school will determine exactly how much you are eligible to borrow in federal loans based on a number of factors, including the amount the federal government expects you and your family to contribute to your educational costs, your current enrollment status, the school’s cost of attendance, any other financial aid you receive, and whether you are a dependent or independent student.

However, there are limits on the amount you can borrow with a Direct Loan, regardless of your financial need. If you are a dependent student, you can borrow a total of $31,000 for your undergraduate education in federal loans, but no more than $23,000 of this amount may be in Direct Subsidized Loans. Graduate and professional students cannot borrow subsidized loans.

Beyond Subsidized Loans: Other Options Available to Student Borrowers

Since eligibility for Direct Subsidized Loans is based on borrower need, and there are annual borrowing limits, you may be interested in learning about other available loan options. There are three other types of federal loans, and some borrowers may also want to consider private student loans.

The three types of federal loans available outside of Direct Subsidized Loans are:

•   Direct Unsubsidized Loans These loans are available to undergraduate and graduate students, and eligibility is not based on financial need. Unlike Direct Subsidized Loans, however, interest starts accruing as soon as the money is disbursed to your school. You may choose not to pay this interest while you’re in school and during your six-month grace period, but any unpaid interest that accumulates during this time will be added to your total balance. How much you can borrow with an unsubsidized loan depends on your year in school as well as if you’re a dependent or an independent student.

•   Direct PLUS Loans PLUS Loans are options for graduate/professional students and parents of students who are interested in borrowing a loan to help their child pay for college. Eligibility for this type of loan is not based on need, but the application process does require a credit check. The terms of these loans are somewhat less favorable than Direct Loans, which is why families will want to look at Direct Unsubsidized and Subsidized loans first. The interest rate on PLUS loans for the 2023-24 academic year is 8.05%. These loans also have an origination fee of 4.228%.


💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

•   Direct Consolidation Loan This federal loan isn’t awarded to borrowers as a part of their financial aid package. Instead, a Direct Consolidation Loan allows borrowers with multiple federal loans to combine (or consolidate) them into a single loan, usually after school. The loan’s new interest rate is the weighted average of the current interest rates on the student loans that will be consolidated, rounded up to the nearest one eighth of a percent.

Private student loans are available through private lenders, including banks, credit unions, and online lenders. They come with a variety of terms and can offer competitive interest rates for students (or parent cosigners) with good or excellent credit. Unlike federal student loans, which offer only fixed rates, private student loans can have fixed or variable interest rates.

Also unlike federal student loans, private student loans often don’t charge any fees, such as an origination fee. However, private student loans don’t come with the same protections, such as government-sponsored loan forgiveness and income-driven repayment plans, as federal loans. Because of this, you may want to consider private loans only after you’ve exhausted federal loan options like Direct Subsidized loans and other sources of federal aid.

To apply for private student loans, potential borrowers will need to fill out an application directly with the lender of their choice.

The Takeaway

Borrowers with Federal Direct Subsidized Loans are not responsible for the interest that accrues while they are enrolled in school at least half-time or during the grace period or other qualifying periods of deferment. The interest is subsidized by the U.S. government. To qualify for this type of federal student loan, borrowers must be qualifying undergraduate students who demonstrate financial need.

Other options for students looking to pay for college may include Federal Direct Unsubsidized loans and PLUS Loans, scholarships and grants, and federal work-study programs, and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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There are a few different options when it comes to financing a college education, and it’s important to understand the pros and cons of each. Then, you’ll likely be better able to develop a funding strategy that fits your unique situation.

Depending on your academic qualifications, you may have been awarded scholarships or grants, which is funding that won’t (typically) need to be repaid. Any expenses not covered by a scholarship will need to be financed, often through a combination of work-study, personal funds, or student loans.

It is fairly common for college students to take out student loans to finance their education. There are two main types of student loans — private student loans and federal ones. We’ll compare and contrast some of the more popular features of both private and federal student loans and explore some features that can help you determine what makes the most sense for your financial situation.

Recommended: How Do Student Loans Work? Guide to Student Loans

Federal Student Loans

Federal student loans are funded by the federal government. In order to qualify, you must fill out the Free Application for Federal Student Aid (FAFSA) every year that you want to receive federal student loans. We’ll delve more into FAFSA® soon — but first, here are some important distinctions to consider.

Subsidized vs Unsubsidized Loans

Federal loans can be subsidized or unsubsidized. If you’re an undergraduate student in financial need, you may qualify for a subsidized loan. The amount of money you qualify for will be determined by your school.

With subsidized loans, the U.S. government covers the interest that accrues while you are a full- or half-time student, during a six-month grace period after graduation, and for any periods of loan deferment.

If you receive an unsubsidized federal loan, you don’t need to demonstrate financial need when applying. Interest begins accruing right away, from the day your loan is disbursed — though borrowers are not required to make payments until six months after graduation. As with subsidized loans, your school will determine the amount you can receive, based on your cost of attendance.

Direct PLUS Loans for Parents and Graduate Students

Direct PLUS Loans are another source of federal student loan funding. To qualify for graduate PLUS Loans, you need to be a graduate-level or professional student in a program that offers degrees or certifications and attend college at least half-time.

Parents can also apply for a Parent PLUS loan if their dependent undergraduate student attends an eligible school at least half-time. “Parent” is defined as biological, adoptive, or sometimes a stepparent.

To obtain a Direct PLUS loan, you cannot have an adverse credit history. Plus, you and your dependent child must meet the general eligibility requirements for federal student aid.

Recommended: The Differences in Direct vs. Indirect Student Loans

More About the FAFSA

If you plan to apply for any of these types of federal loans, you’ll need to fill out the FAFSA form. Be aware of your state’s FAFSA deadline — FAFSA funding is determined on a rolling basis, so the sooner you can apply, the sooner you may qualify.

Additionally, the application for the 2024-2025 school year won’t be available until December 2023. Usually, the new form launches every year on October 1. This means students will have less time to complete the form before the earlier state deadlines.

Benefits of Federal Student Loans

First off, you won’t be responsible for making student loan payments while you are actively enrolled in school. Your repayment will typically begin after you graduate, leave school, or are enrolled less than half-time.

Another perk is that your credit history doesn’t factor into a federal loan application. One exception is Direct PLUS Loans for grad students and parents.

Interest rates on federal student loans are fixed and typically lower than interest rates on private student loans. Depending on the type of federal loans you have, the interest you pay could be tax-deductible.

When it comes to federal student loan repayment, there are several options to choose from, including several income-driven repayment plans.

And if you run into difficulty repaying your federal student loans after graduation, or if you drop below half-time enrollment, deferment and forbearance options are available. These programs allow qualifying borrowers to temporarily pause payments on their loans should they run into financial issues — but interest may still accrue. The loan type will inform whether a borrower qualifies for deferment or forbearance. Borrowers can contact their student loan servicer for more information on these programs.

Qualifying borrowers can also enroll in certain forgiveness programs, such as Public Service Loan Forgiveness (PSLF). These programs have strict requirements, so borrowers who are pursuing forgiveness should review program details closely.

Federal Student Loans Pros and Cons

Here is a recap of some of the pros and cons of federal student loans.

The CARES Act and Federal Student Loans

The CARES Act, passed in March 2020 in response to COVID-19, temporarily paused payments on most federal student loans and set interest at 0%. With the signing of the debt ceiling bill in June 2023, the three-year pause came to an end. Interest on federal student loans resumes on September 1, 2023, and the first post-pause payments will be due sometime after October 1. To ease the transition, borrowers won’t be reported as delinquent if they are late with payments through September 2024.

The CARES Act and the payment pause did not apply to private student loans.

Private Student Loans

Private student loans are not funded by the government. To apply for them, you can check with individual lenders (banks, credit unions, and the like), with the college or university you’ll be attending, or with state loan agencies.

Because these loans are available from multiple sources, each will come with its own terms and conditions. So, when applying for private student loans, it’s important to clearly understand annual percentage rates (APRs) and repayment terms before signing, as well as the differences between private vs. federal student loans.

Since private student loans are not associated with the federal government, their repayment terms and benefits vary from lender to lender. Some private loans require payments while you’re still attending college. Unlike federal loans, interest rates could be fixed or variable. If you are applying for a variable-rate loan, it’s a good idea to check to see how often the interest rate can change, plus how much it can change each time, and what the maximum interest rate can be.

When applying for a private loan, the lender typically reviews your financial history and credit score, which means it may be beneficial to have a cosigner.

Be sure to ask your lender about repayment options in addition to any deferment or forbearance options. These will all vary by lender, so it’s important to understand the terms of the particular loan you are applying for.

Private loans can help fill the monetary gap between what you’re able to cover with grants, scholarships, federal loans, and the like, and what you owe to attend college. It’s never a bad idea to take the time to do your research, shop around, and find the best loan options for your personal financial situation. For a full overview, take a look at SoFi’s private student loan guide.

Determining Whether a Student Loan Is Federal or Private

To find out if the student loan you have is a federal student loan, one option is to check the National Student Loan Data System (NSLDS). This database, run by the Department of Education, is a collection of information on student loans, aggregating data from information about student loans, from universities, federal loan programs, and more.

Borrowers with federal student loans can also log into My Federal Student Aid to find information about their student loan including the federal loan servicer.

Private student loans are administered by private companies. To confirm the information on a private student loan, one option is to look at your loan statements and contact your loan servicer.

Options for After Graduation: Consolidation vs Refinancing

After graduation, depending on one’s student loan situation, borrowers may wish to consider consolidation or refinancing options to combine their various loans into a single loan.

What Is Student Loan Consolidation?

The federal government offers the Direct Consolidation Loan program that allows borrowers to combine all of their federal loans into one consolidated loan.

Loans consolidated in this program receive a new interest rate that is the weighted average of the interest rates of all loans being consolidated — rounded up to the nearest one-eighth of a percent. This means that the actual interest rate isn’t necessarily reduced when consolidated. If monthly payments are reduced, it is most likely because the repayment term has been lengthened. Additionally, only federal student loans are eligible for consolidation in the Direct Consolidation Loan program.

What Is Student Loan Refinancing?

Borrowers with private student loans might consider refinancing their loans. Essentially, refinancing is taking out a new loan. Depending upon individual financial situations, applicants could qualify for a lower interest rate through refinancing.

When an individual applies to refinance with a private lender, there is typically a credit check of some kind. Each lender reviews specific borrower criteria, which varies from lender to lender, which influences the rate and terms an applicant may qualify for.

Recommended: The SoFi Guide to Student Loan Refinancing

But what if you have both federal and private loans? If you combine your federal loans through the Direct Consolidation Loan program and refinanced your private loans, you’d still have two payments. SoFi can refinance federal and private student loans together to give you one convenient payment. It’s important to note, however, that the benefits and protections offered with federal student loans don’t transfer when loans are refinanced by private lenders, so keep that in mind.

To get a sense of how refinancing might impact your student loans, take a look at this student loan refinancing calculator.

Refinanced Student Loans Pros and Cons

Refinancing student loans can have pros and cons. This table details a few to consider.

Can You Refinance a Private Student Loan to a Federal One?

It’s not possible to refinance private student loans into federal loans. Because private student loans are made directly with private lenders, not the federal government, it is not possible to refinance them into federal student loans.

Combining Federal and Private Student Loans

Refinancing federal loans with a private lender is the only option that allows borrowers to combine both federal and private student loans into a single loan. While refinancing may allow borrowers to secure a competitive interest rate or preferable terms, it’s very important to understand that when you refinance federal student loans, they no longer qualify for federal benefits or borrower protections.

Refinancing may make sense for federal student loan holders who do not plan to take advantage of any federal programs or payment plans, but it won’t make sense for everyone. When you are evaluating whether you should refinance student loan debt, reflect realistically on your professional and financial situation. For example, borrowers who are enrolled in income-driven repayment plans or are pursuing Public Service Loan Forgiveness, may find that refinancing their federal student loans doesn’t make sense for their personal goals.

The Takeaway

Federal student loans differ from private student loans in key ways. You must fill out the FAFSA every year to qualify for federal loans. With subsidized federal loans, interest doesn’t accrue until after graduation and a six month grace period. And federal loans offer special protections to borrowers, such as deferment and Public Service Loan Forgiveness. The same protections are not available on private student loans. You may or may not qualify for a lower interest rate on a private student loan, depending on your credit history, whereas your credit score doesn’t affect your ability to qualify for federal student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.