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Subsidized loans, a type of loan offered by the federal government, used to be available to graduate students. Unfortunately, that is no longer the case. The program that allowed graduate students to receive subsidized loans was ended in 2011 by the Budget Control Act. For now, these loans are only available for undergraduate students. However, there are other loans available to help pay for grad school. Continue reading for more information on subsidized loans and the other options available to graduate students.

What Are Subsidized Loans?

Federal student loans are offered through the U.S. Department of Education to help students cover the cost of higher education. The government helps students pay for degrees or certificates from colleges and universities, community colleges, and trade, career, or technical schools.

Direct Subsidized Loans are available to undergraduate students able to demonstrate financial need. The amount of the loan is determined by the school you are applying to.

The Department of Education pays all interest on the loans while you are in school at least half-time, during the six-month grace period after you leave school, and during periods of deferment. Outside of these periods, the borrower is responsible for making all principal and interest payments.

Subsidized vs Unsubsidized Loans

Federal Direct Unsubsidized Loans, on the other hand, are one of the student loans available to undergrads and graduate students. Students do not have to demonstrate financial need to qualify for these loans.

The loan amount is still determined by your school, and you are entirely responsible for making interest payments during all periods.

When considering subsidized vs. unsubsidized loans, it’s important to understand both are subject to loan limits. In aggregate, dependent students, except those whose parents are unable to take out PLUS loans, may borrow no more than $31,000, at a given time, of which only $23,000 may be in subsidized loans.

For undergraduates whose parents are unable to access PLUS loans, the loans limit is $57,500, with no more than $23,000 in subsidized loans.

And for graduate students, the loan limit is $138,500, of which no more than $65,500 may be in subsidized loans. What’s more, the aggregate limit also includes whatever student loans you may have from your time as an undergraduate.

When you reach the aggregate loan limit, you will not be allowed to borrow any more money in federal student loans. However, if you are able to pay off some of your loans you may be able to borrow again up to the aggregate loan limit.

Interest rates for both types of loans are set by the federal government each year. For the 2023-2024 academic year, the interest rate for undergraduate borrowers is 5.50% for Direct Subsidized Loans and Direct Unsubsidized Loans. The interest rate for graduate borrowers for Direct Unsubsidized loans is 7.05%. The interest rate is fixed over the life of the loan.

Alternatives to Subsidized Loans

In addition to unsubsidized loans, there are other loans available from the government and private sources that can help you pay for grad school.

Grad PLUS Student Loans

Grad PLUS Student loans are another federal loan available through the Department of Education. They are also known as Direct PLUS loans. Grad PLUS Loan requirements include that you must be a graduate student enrolled at least half-time at an eligible school. Your program must lead to a graduate degree, a professional degree, or a certificate. You meet the basic eligibility requirements for federal student aid and must not have an adverse credit history.

Under the Grad PLUS program you are allowed to borrow the cost of attendance less any other financial aid. And you don’t have to repay the loan until six months after you leave school or drop below half-time enrollment.

Interest rates on the loan are fixed. Any loans disbursed after July 1, 2023, carry an interest rate of 8.05%.

To apply for federal student loans, you’ll need to fill out the Free Application for Federal Student
Aid (FAFSA®) . Your school will use the information on this form to determine how much aid you are eligible to receive and present it to you in an offer letter. The offer letter will also give you information about grants and work-study programs you may be eligible for.

Recommended: Grad PLUS Loans, Explained

Private Loans

Private student loans are available through banks and credit unions and other private institutions. The individual lender will determine the amount you can borrow, terms of the loan, and interest rate based in large part on financial factors such as your income and your credit score. Many undergraduates will need a cosigner to qualify for a private student loan. Cosigners are responsible for making loan payments if you fail to do so.

Private loans may allow you to borrow beyond the federal limits imposed on federal loans, or help you pick up the slack if you didn’t qualify for enough federal funding. Though they may lack protections afforded to federal student loans, and as a result, are generally thought of as a last-resort option when paying for grad school.

Personal Loans

Personal loans are also available through private lenders. Borrowed funds can be used for practically any purpose, which means they could potentially be used to cover expenses beyond tuition, fees, room and board, such as transportation. As with private loans, the amount you can borrow will depend on your financial history or that of a cosigner.

How Much Can You Borrow for Graduate School?

The amount you can borrow for graduate school will depend on the types of loans that you use.

Grad PLUS student loans potentially allow you to borrow up to the full cost of attending your program less any other financial aid.

However, unsubsidized loans limit your aggregate borrowing to $138,500, and that’s including any federal loans that you took out as an undergraduate.

Borrowers who are enrolled in certain health profession programs may be subject to a higher aggregate limit for Direct Subsidized Loans, and should talk to their school’s financial aid office.

Private student loans may limit borrowers to the cost of attendance. Policies will likely vary by lender.

Personal loans may allow you to borrow as much as $100,000 with no limitations on how the money must be spent. Again, specific policies may vary by lender.

Recommended: What is the Maximum Amount of Student Loans for Graduate School?

The Takeaway

Federal subsidized loans are no longer available to graduate students. Though organizations like the National Association of Student Financial Aid Administrators are pushing for legislation that would reintroduce the loans. In the meantime, graduate students have other options, and may rely on federal unsubsidized loans, Grad PLUS Loans, loans from private lenders, or a combination of the above to help pay for school.

Visit SoFi, to learn more about options for private student loans.

FAQ

Does the US Department of Education offer subsidized loans for graduate students as part of financial aid packages?

Federal Direct Subsidized Loans are no longer available to graduate students.

Are Grad PLUS Loans subsidized loans?

Grad PLUS Loans are not subsidized, which means that interest accrues while the student is in school.

Can you pay off subsidized loans before graduating?

You can pay off federal subsidized loans before you graduate without paying any penalty. Note that federal subsidized loans do not accrue interest while you are in school.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Parents and grad students have options when it comes to paying for college. Federal aid, institutional scholarships and grants…prepaid tuition plans. But sometimes there’s a leftover cost.

Federal PLUS Loans are an accessible option for graduate students and parents of college students.

Parent PLUS Loans are federal loans for parents of full time students. They offer flexible repayment options, fixed interest rates, and higher borrowing limits.

Direct PLUS Loans are available to graduate or professional degree students. They are also known as “grad PLUS Loans.” Both Parent and Grad loans fall under the Direct Loan Program operated by the federal government.

What Is a Parent PLUS Loan?

As mentioned, Parent PLUS Loans can be borrowed by parents of undergraduate students, in order to help their child pay for college. These loans are funded by the U.S. Department of Education and are part of the Direct Loan Program.

Unlike other types of federal student loans, Parent PLUS Loans do require a credit check. If an applicant has an adverse credit history, they may not be approved to borrow a Parent PLUS Loan.

Recommended: What Is a Parent PLUS Loan?

How Do Parent PLUS Loans Work?

As noted previously, Parent PLUS loans are available to all qualifying parents of undergraduate students. Borrowers with poor credit history can ask an “endorser” to cosign the loan or borrowers can send a report clarifying their credit history to be considered.

The loan amount is limited to your child’s Cost of Attendance (COA), less any other aid awarded to the student. The interest rate is fixed for both loan types and interest accrues the moment it’s released, even during deferment. Also, PLUS loans have an origination fee of 4.228% for the 2023-2024 academic year.

Like other loans in the Direct Loan program, a third party company called a “loan servicer” manages customer service around general billing requests such as repayment and deferment.

Parent PLUS Loan Application Process

The first step in borrowing a Parent PLUS Loan is to have your child fill out the FAFSA® or Free Application for Federal Student Aid. This is required before a parent can request a PLUS Loan. After the FAFSA is taken care of, parents can submit an online application for a PLUS Loan.

Note that while most schools offer an online application, some schools may have a different process. If you have any questions, check in with the financial aid office at the school your child attends.

Before applying, remove any security freezes on your credit bureau files. Any active credit freezes will prevent an application from being processed.

It may take upwards of 20 minutes to complete the application. And you’ll generally need the following information:

•   Verified FSA ID

•   School Name

•   Student Information

•   Personal Information

•   Employer’s Information (such as the employer’s name, address, and phone)

A verified FSA ID is a unique ID that acts as a legal electronic signature. It should only be used by that applicant.

After being approved for the PLUS Loan, borrowers will be required to fill out the Master Promissory Note (MPN). This indicates that you agree to the terms of the loan.

Recommended: Do You Have to Apply for a Parent Plus Loan Every Year?

Filling Out the FAFSA

The FAFSA is required for all forms of federal student aid, including grants, work-studies, and federal loans. Some state and school-specific aid may also be awarded based on information included on a student’s FAFSA form.

Applicants who submit a FAFSA get a Student Aid Report (SAR) that summarizes the form’s information. It will include your Student Aid Index number (SAI) and your eligibility for federal grants and loans among other details. Schools listed on your FAFSA get a copy of this report to determine aid.

Recommended: FAFSA Guide

Determining Your Eligibility

Borrowers must fulfill the following basic requirements:

•   Be the legal guardian of an undergraduate enrolled in a higher ed program part-time or full-time

•   Fulfill general Federal Student Aid requirements, such as citizenship

•   Not have an adverse credit history

How Much Can You Borrow?

Parent PLUS Loan borrowers can take out the total cost of attendance of the program their child is enrolled in, less the amount of scholarships or other forms of aid.

How Much Do You Want to Borrow?

It can be tempting to borrow to make paying for college easier, but be cautious of overborrowing. Parent PLUS loans have costlier fees and rates, with the latest interest rate at 8.05% combined with a 4.228% origination fee.

For income-earning parents, it may be easier to measure the amount of student debt you should take on. As a general rule of thumb, all debt, including student loans, should not exceed more than 20% of your annual or projected annual take home pay.

Filling Out Your Parent PLUS Loan Application

Prospective students and parents of prospective undergraduates fill out a parent plus loan application online. Grad PLUS loan applications are separate online forms.

Enrollees will have the option to sign up for deferment and get a credit check on the spot — so be prepared to know which decision works best for you to apply for student loan. Finally, borrowers can view a demo to tailor the prep-work.

Recommended: Grad PLUS Loans, Explained

Signing a Promissory Note

Once you complete the plus loan application, you’ll be directed to complete a Master Promissory Note (MPN). An MPN spells out a borrower’s rights and responsibilities in the loan agreement.

Loans will not be awarded until an MPN is completed.

You’ll be asked to fill out personal information and provide two references as future contacts in case you’re unreachable.

What to Expect After Applying

Approved loans will be disbursed to the school you’re enrolled in and they’ll apply the loan to outstanding fees, tuition, and/or room and board. If there are funds leftover, you can cancel the remainder or choose to keep it for discretionary expenses related to higher ed day-to-day living.

What If You Are Denied?

If you are denied a loan, you may be able to add an endorser to your application. An endorser is someone who agrees to pay your loan if you are unable. If you were denied for having an adverse credit history, you will likely need to complete an online PLUS Credit Counseling course.

How Long Until the Loan Is Disbursed?

Each school pays out loans on a different schedule. Once the federal government has processed your paperwork and released funds, schools handle the process afterwards. If you have questions about when your loan will be disbursed, contact the financial aid office at your child’s school.

When Do You Need to Begin Repayment?

Repayment for Parent PLUS Loans may begin immediately upon disbursement or after deferment, depending on the repayment plan you select.

If you request a deferment, you are able to pause payments until six-months after your child graduates from college. If you are interested in this option, you can make this selection on the PLUS Loan application or request it directly with the loan servicer. Interest will accrue even while the loan is in deferment.

Applicants who do not choose deferment must begin repayment as soon as the loan is disbursed.

Income-Driven Repayment Options for Parent PLUS Loans

Parent PLUS Loan borrowers are able to enroll in an income-driven repayment plan if they first consolidate the loan through the Direct Consolidation Loan Program. Income-driven repayment plans tie the monthly payments to your income and repayment takes place over a period of 20 to 25 years.

On these plans, your loan payment may fluctuate each year, depending on your income and family size. At the end of your repayment period, any outstanding balance is forgiven, but under certain circumstances, this forgiven amount may be considered taxable income by the IRS.

The Takeaway

Parent PLUS loans are federally funded loans available to parents of undergraduate students. PLUS loans and private student loans meet different needs. Parents might like the idea of their children learning independence, and getting a loan in their name — even as a cosigner — might be a more attractive option.

Also, a key difference between PLUS loans and private student loans is credit score impact on borrowing limit and interest rates. Parents who have lower, but not adverse credit scores, might get higher interest rates and lower borrowing limits for a private loan versus a PLUS loan.

SoFi offers the same benefits as most federal parent loans, including deferment and flexible repayment plans. Our interest rates for private student loans are competitively low — and we have a no-fee policy.

Check out our private loans for undergrads today and find out your rate in minutes.

FAQ

How long does it take for approval for a parent PLUS loan for college?

Loan applications are approved or denied on submission and schools are notified within 24 hours. Applicants must pass eligibility requirements after completing the application. An MPN and FAFSA also must be completed prior to loan awards. Disbursement processing times differ with each school.

Can you be denied a parent PLUS student loan?

Yes, if you have an adverse credit history. You can get a PLUS loan with an endorser or documentation proving extenuating circumstances around your history. Examples include foreclosure or bankruptcy.

What is the maximum borrowable amount for a parent PLUS loan?

The maximum amount allowed is your child or your Cost of Attendance (COA). COAs are determined by schools.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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With the cost of higher education at an all-time high, many students need financial assistance to pay for tuition, room and board, books, and more. In fact, in the U.S. alone, 43 million borrowers are carrying over $1.7 trillion in student loan debt.

Taking out student loans may be the first major financial commitment you make. And it’s a decision that has the potential to affect your financial situation for years to come. So it’s crucial to understand the terms you’re signing up for, and all the options available.

To help you get started, here’s a quick guide to student loans. We’ll break down the basics of how loans work, how to apply for both federal and private student loans, and what to expect after you graduate.

What Is a Student Loan?

Student loans let young people borrow the money they need to pay for their education. Like other types of loans, this money must be repaid in the future, with interest.

Student loans can be borrowed by the student or, in some cases, by their parents. When a student loan is borrowed by a parent to pay for their child’s education, it may be called a parent loan.

The way student loans work is similar to other loans, but the application process is different, especially when it comes to federal student loans (more on that below). Federal student loans are funded by the federal government.

With private student loans, the application process is similar to other types of loans. Potential borrowers will file an application directly with the bank of their choice.

What Can Student Loans Be Used For?

Student loans can be used to pay for a student’s qualified educational expenses. These include things like tuition, books and supplies for classes, and fees charged by the school.

They can also be used to pay for room and board, living expenses, commuting to school, and a laptop or computer used for school.

Private student loans can even be used to pay off an outstanding tuition balance. Each lender determines how far in the past a loan can be used to pay an overdue balance, but many will allow loans to cover past-due balances that are 6-12 months outstanding. Also, keep in mind that you can apply for a private student loan at any time, and paying before the bill is due is preferable so you don’t have any interruptions in enrollment or class scheduling.

Graduate students are also eligible for federal aid and are encouraged to complete a grad school FAFSA.

Recommended: What Can You Use Student Loans For?

The Two Main Student Loan Categories

Student loans fall into two main categories, federal and private. Federal loans, which are funded by the federal government, offer some advantages and protections for borrowers. These special features, which are not common with regular loans, include:

•   Lower, fixed interest rates (what you pay the lender for loaning you the money) that offer a better deal than private student loans.

•   Income-driven repayment plans, which base your monthly payment after graduation on your salary.

•   Temporary relief programs for graduates who are facing unemployment or other hardship.

Federal Student Loans

Federal student loans are provided by the government. However, your payments and loan management are usually handled through an independent company called a student loan servicer.

To see if you qualify for a federal loan and other federal student aid, you need to fill out the Free Application for Federal Student Aid, commonly referred to as FAFSA®. The application must be filled out every year you want to apply for federal student aid.

There are a few different types of federal student loans. The main federal student loans are:

•   Direct Subsidized Loans, available to eligible undergraduates with financial need. The interest that accrues while students are enrolled in school and during the grace period is covered by the U.S. Department of Education.

•   Direct Unsubsidized Loans, available to eligible undergraduates and graduate students regardless of financial need.

•   Direct PLUS Loans, available to parents of undergraduate students and to graduate or professional students for expenses not covered by financial aid.

Check out our breakdown of the different types of federal student loans for details on how these loans work and the distinctions between them.

Private Student Loans

Private student loans are issued by non-government lenders, such as banks, credit unions, or other financial service companies. A potential borrower’s eligibility and terms will depend on their credit history (their financial track record) and other factors.

Parents or even family friends can cosign with a student who may not be able to qualify for a private student loan on their own. Unlike federal loans, repayment on private student loans may start while the borrower is still enrolled in school.

Unlike their federal counterpart, private student loan lenders may not offer the same safety-net protections in cases of financial hardship or unemployment. So be sure to understand the terms before taking a private student loan. Private loans tend to be the last option for paying for college after all other methods of financial aid have been exhausted.

Recommended: Guide to Private Student Loans

Understanding How Student Loans Work

Understanding the difference between federal and private student loans is the first step in navigating how college loans work. Here is other essential information:

Student Loan Application Process

Applying for federal student loans requires students to complete the FAFSA every year they attend college. Some people assume they won’t meet the requirements for FAFSA federal aid because of their parents’ income or a low GPA, but that’s usually not the case.

Everyone who might need help paying for college should fill out the FAFSA. Aside from federal student loans, there are state and school-based scholarships, grants, and work-study programs that you may qualify for. The FAFSA form is generally available on October 1 for the following school year and can be completed online. Note that the form for the 2024-2025 academic year is delayed until December; find out more about the FAFSA delay here.

If you’re opting for private student loans, find a reputable lender and make sure your school and program are eligible for their offerings. The application process may or may not have a fee, depending on the lender.

Private lenders typically want applicants to provide basic personal and financial details, and may also consider credit history.

As mentioned above, lenders may allow potential borrowers to apply for a private student loan with a cosigner, such as a parent. Because college students tend not to have much of a credit history yet, adding a cosigner can potentially improve an applicant’s chance of getting approved with a competitive interest rate.

Recommended: High-Income Financial Aid

Student Loan Interest Rates and Fees

Interest is a percentage of the unpaid principal loan amount that is paid to the lender in exchange for borrowing money. Federal student loans have fixed interest rates, and interest is accrued on a daily basis.

The interest rate on federal direct subsidized and unsubsidized loans for undergraduates for the 2023-2024 school year is 5.50%. Interest rates on federal student loans are set annually by Congress.

Fixed-rate student loans have an interest rate that stays the same over the life of the loan. Although the rate might start off higher than on variable-rate loans, it won’t change as general interest rates fluctuate.

The way interest on private student loans works is different. Private student loans may have either fixed or variable interest rates. Variable-rate loans, also called floating-rate loans, have an interest rate that can vary every month, quarter, or year. Rates usually start off lower than a fixed-rate loan, but can fluctuate dramatically over the life of the loan.

If you expect to pay off your student loans quickly, you may consider a variable-rate loan. But if you’re not sure how much you’ll be making after you graduate, or you don’t think you’ll be able to pay your student loans off fast, or you’re just not a risk taker, a fixed-rate loan might be a better choice.

Private student loans will have different interest rates depending on the lender and the borrower’s credit history.

Repaying Your Loan

As long as you’re still in school at least part-time, students aren’t required to make payments on federal loans. The exception for federal student loans is PLUS Loans, which require borrowers to start making payments as soon as they receive the entire loan amount. By the way, if you have an unsubsidized loan, interest starts accruing while you’re enrolled in school.

Your federal loan servicer should give you a student loan repayment schedule that tells you when your first payment is due and how much you owe. There are a few different repayment plans available for federal student loans. Borrowers can change their repayment plan at any time without incurring fees.

Most federal student loans have a six-month grace period, which gives you a break after you leave school before you have to start paying your loans back. Some private lenders also offer grace periods, but it’s not a guarantee. Unless the loan is a federal unsubsidized loan, it will likely accrue interest during the grace period.

PLUS Loans work a little differently. While PLUS Loans for undergraduate studies do not have a grace period, graduate and professional students who receive PLUS Loans receive an automatic six-month deferment that is activated when the student graduates, leaves school, or their enrollment drops below half-time. Also, parent borrowers who’ve received PLUS Loans can request a six-month deferment after their child graduates, leaves school, or enrolls less than half-time.

Private lenders determine when repayment begins on a private student loan, so review your student loan agreement closely before signing.

Many lenders offer interest rate reductions if you have your student loan payments automatically deducted from your checking account.

The Takeaway

Student loans can make it possible for young people to attend college, but just like other types of loans, student-borrowers are charged interest. Federal loans have fixed interest rates and generally have a six-month grace period following a student’s departure from school. They also come with borrower protections and benefits like income-driven repayment plans. Private student loans can be helpful if a student did not receive enough federal aid in the form of federal student loans, scholarships, grants, and work-study, to pay for college. Lenders determine the interest rate and terms partly based on the borrower’s credit history. Interest rates may be either fixed or variable. Private student loans do not carry the same federal borrower benefits.

Students interested in borrowing private student loans should shop around to find the best interest rate and terms they qualify for. SoFi’s private student loans have absolutely no fees, and the application process is entirely online.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

How are student loans paid out?

According to the Federal Student Aid website (StudentAid.gov), your school will give out your loan and grant money in at least two payments, called disbursements. Usually, you’ll receive a payment once per term (semester, quarter, etc.). If you accept a work-study job, you’ll be paid at least once a month.

How much money do student loans give you?

Undergraduates may receive between $5,500 and $12,500 per academic year in direct subsidized and unsubsidized student loans. The amount is determined by your year in school and your dependency status. Your total financial aid is calculated as the difference between the cost of attendance for your school and your family’s expected contribution.

How much is a student loan monthly?

The average monthly student loan payment is $461. Your monthly payment will depend on how much you borrow, your interest rate, and the length of your repayment term.

Can you use a student loan to pay a tuition bill that is past due?

Yes, you can use a private student loan to pay off an outstanding tuition balance. Each lender determines how far in the past a loan can be used to pay an overdue balance, but many will allow loans to cover past-due balances that are 6-12 months outstanding.

Can a SoFi Private Student Loan be used for past-due balances? How long?

Yes. As long as the student is enrolled the next semester or has recently graduated, the student may apply a SoFi Private Student Loan to a past-due balance up to 12 months after term. The school must certify the loan and the dates the funds cover.

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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.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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If you need financial aid to help pay for college, you’ll fill out the Free Application for Federal Student Aid (FAFSA®), which allows you to apply for federal unsubsidized student loans, subsidized student loans, work-study, and grants.

When your FAFSA has been processed, you’ll receive an aid offer that explains the types and amount of aid that a college is offering to you. If you’ve applied to multiple schools, you’ll receive an aid offer from each. You’ll be asked to tell them which forms of financial aid you would like to accept before they apply it to the amount you owe your school.

But you don’t have to accept all the aid on offer, including student loans, so consider your options carefully.

What Are Subsidized and Unsubsidized Loans?

There are two basic types of federal student loans: Direct Subsidized Loans and Direct Unsubsidized Loans. They help eligible students cover the cost of four-years colleges, community colleges, and trade, career, and technical schooling. Here are the major differences between unsubsidized versus subsidized student loans.

Direct Subsidized Loans are student loans for undergraduates with financial need. Your school will determine how much you can borrow, and that amount cannot be more than your financial need.

The government pays all interest on Direct Subsidized loans while you’re in school at least half-time, during the six month grace period after you leave school, and during periods of deferment.

Direct Unsubsidized Loans are available to undergraduates and graduate students. They are not awarded based on financial need.

Again, your school will determine how much you are able to borrow, and you are responsible for paying all interest on the loan amount at all times. If you choose not to pay interest while you’re in school, during the grace period, or if your loan is in deferment or forbearance, the interest will still accrue. At the end of the deferment period, the interest will be added to the principal of the loan.

Interest rates for each type of loan are fixed. For example, for the 2023-2024 academic year, the interest rate for Direct Subsidized Loans and Direct Unsubsidized Loans is 5.50% for undergraduate borrowers. The interest rate for Direct Unsubsidized Loans is 7.05% for graduate or professional borrowers.

There are also limits to the amount of money that you can borrow, and the loan amount that you receive may be less than this limit. For dependent students, except those whose parents can’t receive PLUS loans, the aggregate loan limit is $31,000, of which no more than $23,000 can be in subsidized loans.

For dependent undergraduates whose parents can’t obtain PLUS loans, the limit is $57,500, of which no more than $23,000 can be in subsidized loans. For independent graduate students or professionals, the limit is $138,500, of which no more than $65,500 can be in subsidized loans.

When Might You Be Offered More Loans Than You Need?

You don’t have to accept all of the federal loans that are offered to you. To figure out if you’ve been offered more loans than you actually need, you’ll need to do a bit of budgeting.

Federal loans can only be applied to tuition, fees, housing and meal plans. These won’t be the only expenses you’ll need to cover, however. Consider other costs like transportation, travel, eating outside the dining hall, etc. Add up the costs to which your federal loan would apply and any extra expenses to get a sense of the total cost of going to school.

Now figure out your total funding sources, excluding the sources in your offer letter. This might include money from your parents, scholarships, grants, and any money you may have saved on your own. If your total expenses exceed your sources of funding, you may need to accept the federal loans on offer. However, if they don’t, you might not need to accept all the funding.

Which Loans Should You Accept?

If you don’t anticipate needing the amount of money offered to you through loans, you do not need to accept them. Schools will allow you to decline a loan, accept it, or even accept a portion of it.

That said, if you do decide to take on federal loans, it’s generally wise to accept subsidized loans first because they offer more benefits in the form of government interest payments.

Unsubsidized loans, on the other hand, put you on the hook for all of the interest that accrues on the loan. These loans however are still eligible for other federal benefits and borrower protections.

Can Your Return Unused Student Loans?

If you accept a loan and realize that you don’t need it, the good news is you can cancel the loan, or a portion of it, within 120 days of disbursement. By canceling the loan, you’ll return the money you received, and you won’t owe any interest or be charged any fees.

Alternatives to Federal Student Loans

Federal student loans aren’t the only way to help pay for schooling. Here’s a look at three alternatives:

Private Loans

Students can apply for private student loans which are offered by private institutions, such as banks and credit unions. These lenders will determine the amount you can borrow, interest rates, and terms largely based on financial factors such as your income and your credit score, or that of a cosigner if you need to have one.

Private student loans are not subject to the same loan limits imposed on federal loans, so students can potentially borrow more to cover costs. Though, this also means that private loans aren’t afforded the same borrower protections (like income-driven repayment plans) as federal student loans. For this reason, they are generally considered only after a student has thoroughly reviewed all of their other options.

Personal Loans

Personal loans are also provided by private lenders who, again, set the loan amount, interest rates and terms, based on a person’s financial history. The terms of the loan do not dictate how the money must be used, so they may be a way to cover expenses outside of tuition, fees, room, and board.

Financial Aid

There are a variety of types of financial aid available from public and private sources that can help you pay for school.

Grants and scholarships are money given to you that you don’t need to repay. Scholarships are often given based on academic merit or talent, or they’re given to students wishing to pursue a particular area of study.

The Federal Work-Study Program allows students to work part-time to earn money to pay for schooling.

The Takeaway

When you’re offered a student aid package by the federal government, it may include federal subsidized and unsubsidized student loans. You can accept or decline these loans, or even accept a small portion of them. Consider declining if your sources of funding exceed your expenses. Doing so may be cheaper in the long run, as it allows you to avoid making interest payments.

Private student loans are another potential source of funds to help you pay for school. To learn more about the options available to you to meet your student loan needs, visit SoFi.

FAQ

Is it better to accept subsidized or unsubsidized loans?

When choosing between subsidized and unsubsidized loans, consider accepting subsidized loans first, since the federal government will pay your interest while you are in school at least half-time, during the six month grace period after you leave school, and during periods of loan deferment.

Can you accept student loans and not use them?

You can accept student loans and not use them, but you’ll still be responsible for paying them back with interest. If you find you don’t need the loans, you can cancel them within 120 days of loan disbursement.

How are subsidized and unsubsidized loans different?

Subsidized and unsubsidized loans differ mainly in who they are available to and who must make interest payments. Subsidized loans are available to undergraduate students, and the government makes interest payments while you are in school at least half-time, during the six month grace period after you leave school, and during periods of loan deferment. Unsubsidized loans are available to undergraduate, graduate, and professional students, who are responsible for all loan payments.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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The Free Application for Federal Student Aid (FAFSA®) is the first step in the process of obtaining government-provided student aid while a Pell Grant is a type of federal aid.

Although the Pell Grant vs. FAFSA serve different functions, they both have a role under the broader federal student aid program. A FAFSA provides students access to the Pell Grant, and Pell Grant eligibility is determined by the FAFSA.

What Is FAFSA?

The Free Application for Federal Student Aid is an all-in-one formal application to see if you’re eligible for federal financial aid. Through the FAFSA, students are able to apply for federal grants for college, like the Pell Grant, as well as scholarships, work-study opportunities, and federal student loans from the Department of Education.

As the name indicates, there is no cost to submit a FAFSA. Students will need to complete and submit a new FAFSA for every academic year they are requesting federal aid.

The FAFSA is generally available as early as October 1 for the upcoming academic year. The federal deadline to file the FAFSA is June 30 following the academic year. (Note that the form for the 2024-2025 academic year is delayed until December; find out more about the FAFSA delay here.) However, schools and states might have their own FAFSA deadlines to qualify for non-federal aid. Ask your school about its FAFSA deadline and be aware of your state’s deadline on StudentAid.gov.

Recommended: FAFSA Guide

How FAFSA Works

Each FAFSA is applicable to the upcoming academic year. To receive federal financial aid for multiple years of college, as mentioned, you’ll need to complete the FAFSA each year by the deadline.

A Federal Student Aid (FSA) ID is required to manage your federal student aid account, which includes signing your FAFSA digitally. You can create your FSA ID on StudentAid.gov.

Shortly after submitting the FAFSA, either digitally or a paper application, you’ll receive a Student Aid Report. This report is an overview of all the information you’ve provided on your FAFSA (e.g. your and your parents’ personal and financial information), and includes your Student Aid Index number (SAI; formerly called your Expected Family Contribution). At this stage, you’ll need to make any necessary corrections to your FAFSA by the deadline, which is for the 2022-23 academic year is September 10, 2023.

Your selected schools will then process your FAFSA and provide you with its financial aid offer. This notice will outline the types of aid you’re eligible for and the amount. It will also provide instructions on how to accept the aid offers you want. The accepted aid will then be sent automatically to your school.

What Is the Pell Grant?

A Pell Grant is a federal grant program that offers aid to students who show financial need on their FAFSA. Students are typically not required to repay money awarded in the form of the Pell Grant.

It’s generally available to undergraduate students who have not yet earned a bachelors, graduate, or professional degree. This grant program is not available to students who have been incarcerated in a federal or state institution.

When used for qualified educational expenses, Pell Grants are generally not considered taxable income.

How Pell Grants Work

The maximum Pell Grant award a student can receive may vary from year to year, and the amount you qualify to receive depends on your SAI. For the 2023-24 academic year, the maximum award is $7,395 and the SAI limit is $6,656 for Pell Grant eligibility.

Pell Grant awards are also limited to 12 semesters (or the equivalent of six years) per student. For example, if you received a Pell Grant award for four years of your undergraduate degree, and return to school to complete a graduate program, you’ll only have two years of lifetime eligibility left to receive Pell Grant funding.

In certain situations, students may be required to repay all or a portion of their Pell Grant. Some circumstances that may require repayment include a change in enrollment that may impact your eligibility such as withdrawing from school. If you are required to repay all or a portion of your Pell Grant, you will be notified by your school.

Pell Grant vs FAFSA

When comparing the differences and similarities between the federal pell grant vs. FAFSA, you’ll find they share some broad attributes, but have significant differences.

The first notable difference is that the FAFSA isn’t a type of financial aid; instead, it’s a general application for multiple federal aid programs. A Pell Grant, on the other hand, is a type of federal aid program that uses the FAFSA to determine if a student is eligible.

Neither the Pell Grant or FAFSA have defined income limits for eligibility. Anyone can submit a FAFSA, regardless of their household income. However, only students who demonstrate financial need are eligible for certain federal aid programs, like the Pell Grant.

The government uses students’ SAI — which is calculated based on a number of factors — to decide Pell Grant eligibility. For the 2023-24 academic year, the maximum SAI for Pell Grant eligibility is $6,656.

Also, both undergraduate- and graduate-level students can submit a FAFSA, but Pell Grants are typically restricted to undergraduate students only.

FAFSA	Pell Grant
Application for various types of federal aid programs.	One grant option among a handful of federal grant programs.
No income limits for eligibility.	Eligibility is determined based on a student’s SAI.
Financial need isn’t required to apply.	Must demonstrate exceptional financial need.
Undergraduate and graduate students can apply.	Generally offered to undergraduate students.

Which Forms of Financial Aid Should You Prioritize?

If your financial aid award includes a Pell Grant and other types of aid offers, carefully decide which aid you want to accept, and how much.

To avoid graduating school with excessive student debt, consider prioritizing financial aid as follows:

•   Scholarships and grants, like the Pell Grant, which don’t need to be repaid after you graduate.

•   Earned financial aid, like participating in work-study opportunities. You can also consider taking on a part-time job while you’re enrolled in school.

•   Borrowed financial aid, like federal student loans. Federal student loans offer low, fixed rates and protections, like income-driven repayment plans and extended deferment and forbearance. Prioritize federal loans before borrowing private student loans which don’t guarantee the same benefits.

Recommended: FAFSA Grants & Other Types of Financial Aid

What If You Don’t Qualify for Financial Aid?

Students who don’t qualify for federal financial aid still have options to help finance their college education.

Scholarships

Scholarships are a type of financial aid that doesn’t need to be repaid. They can be need- or merit-based, and are sponsored by nonprofit and private organizations, businesses, professional associations, and more.

Other Grants

Like scholarships, non-federal grants are provided to students, based on need or merit. They don’t have to be repaid after graduation making them a good financial aid choice.

Recommended: The Differences Between Grants, Scholarships, and Loans

Private Student Loans

Students can also apply for private student loans. This form of aid must be repaid in full, plus interest. You can find them from private financial institutions, like online lenders, banks, and credit unions. Your school or state might also offer private student loan options. One thing to know about private student loans, as mentioned is that they lack borrower benefits afforded to federal student loans, and are therefore generally only considered as a last resort option.

Recommended: Guide To Private Student Loans 

The Takeaway

As previously mentioned, the FAFSA is an application that students must fill out if they are interested in applying for any federal student aid including scholarships, work-study, grants, and federal student loans. A Pell grant is a type of aid, awarded to students who demonstrate exceptional financial need.

If you find that you’re not eligible for a Pell Grant, or qualify for financial aid, but not enough, SoFi’s private student loan could help. The online application process is fast and easy, and you can check your rate in just a few minutes. Plus, SoFi student loans have no fees and qualifying borrowers can secure competitive interest rates.

Find out if you pre-qualify and at what rates.

FAQ

Can you get a Pell Grant without FAFSA?

No. Completing and submitting a FAFSA is a requirement to apply for a federal Pell Grant. The FAFSA is used by your school to determine your eligibility for Pell Grant aid, and the amount you can receive under this grant program.

Can you get a Pell Grant and other forms of financial aid?

Students who are eligible for a Pell Grant might also be offered other types of financial aid. If you’re eligible, you’ll receive the full Pell Grant amount you’re eligible for, regardless of other existing financial aid.

Do you have to repay a Pell Grant if you don’t graduate?

You might have to repay a portion of your “unearned” Pell Grant, if you withdraw from school during the same academic year. Your school will calculate how much of your Pell Grant award you’ve earned based on your scheduled attendance, and tell you the amount you owe.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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