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What Is a Federal Direct Subsidized Loan?

December 26, 2019 · 4 minute read

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What Is a Federal Direct Subsidized Loan?

As a college student, it’s more likely than not you’ll have to take out student loans to finance at least a portion of your education. But navigating the ins and outs of student loans can be challenging. A major source of funding for education comes from the federal government.

One type of student loan offered by the government is a Federal Direct Subsidized Loan . A Federal Direct Subsidized Loan can be used to help students attending a traditional four year college or university, community college, or technical school.

In order to qualify for a Federal Direct Subsidized loan, you must demonstrate financial need. Your school, not the federal government, determines the total amount of money you can borrow, and the amount can’t be more than your financial need.

Just like all loans, you are obligated to pay back the amount that you borrow once you graduate. The benefit of subsidized loans (as opposed to unsubsidized loans) is that the federal government pays the interest that accrues while you are in school.

What Are the Benefits of a Federal Direct Subsidized Loan?

Like any other student loan, you will be responsible for paying back your Federal Direct Subsidized Loan after you finish school, but unlike many other student loans, you won’t be responsible for paying interest while you are in school or during your grace period. If you qualify, the government subsidizes your loan by paying the interest on your behalf.

Since the government is paying the interest, there is no accrued interest to be capitalized on the principal value of the loan when you graduate. This means that the amount you originally borrowed and the amount you’ll have to repay after your grace period ends will be the same.

Interest won’t start accruing until after your grace period is over. This might sound like a minor detail, but not having to pay interest while you are in school can drastically cut down the overall cost of your loan.

Other benefits of a Federal Direct Subsidized Loan? Like other federal student loans, you are not obligated to make payments during school, and you may be eligible for affordable government repayment plans.

How Do You Apply for a Federal Direct Subsidized Loan?

In order to apply for a Federal Direct Subsidized Loan, you will need to complete the Free Application for Federal Student Aid , more commonly known as FAFSA ®. The FAFSA is available for free online, and it asks you questions about the financial circumstances of you and your family.

The information you submit through the FAFSA is transmitted to your school, which uses the information to determine how much and which types of aid for which you may be eligible.

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

Once you’ve filled out your FAFSA, you will receive a Student Aid Report , which will explain your eligibility for the various types of federal financial aid. What type of aid and how much aid you are eligible for depends on many different circumstances, including the amount the federal government expects you and your family to contribute to your educational costs, your current enrollment status in school, and the cost of attending your particular college.

The financial aid staff at your school is responsible for determining exactly how much and what type of federal loans you are eligible for.

Because Federal Direct Subsidized Loans are a need-based form of federal financial aid, you must meet certain eligibility requirements to qualify. These requirements are largely based on your expected family contribution , or how much the federal government expects that you and your family can put towards your educational expenses.

There are also limits on the amount of subsidized loans you can borrow each year, regardless of your financial need. For 2019, for instance, the limit on subsidized loans was $3,500 for first-year undergraduates, $4,500 for second-year undergraduates, and $5,500 for third-year undergraduates and beyond.

Paying Back a Direct Subsidized Student Loan

Like other types of student loans, you will need to start paying back your Federal Direct Subsidized loan if you leave school or after graduation. After graduation, you are eligible for a six-month grace period before you are required to start paying back your student loans.

Some people with Direct Student Loans may potentially qualify for Public Service Loan Forgiveness (PSLF). Public Service Loan Forgiveness is available to qualifying college graduates who work in certain fields like government, the nonprofit sector, or healthcare, and allows some federal student loans to be forgiven after 10 years of qualifying payments.

Additionally, actually getting federal student loan forgiveness benefits might be a huge challenge, and by some reports , many people who thought they would qualify for PSLF aren’t actually able to take advantage of the program. Despite its complications, however, Public Service Loan Forgiveness is certainly worth considering if you work in public service.

Another option to help manage your student debt is student loan refinancing. Student loan refinancing doesn’t change the underlying principal amount that you owe; instead, it can help save you money over the life of your loan by offering you better repayment terms and, ideally, a better interest rate.

A lower interest rate and better repayment terms could mean that less money is going towards paying back your student loans and more money is staying in your bank account.

Refinancing your student loans with a private company makes your loans ineligible for federal student loan forgiveness and other federal student loan protections like forbearance or income-driven repayment plans, so borrowers should weigh all their options carefully before making a decision about their loan repayment strategy.

Ready to see how refinancing with SoFi could impact your student loan repayment? Get a quote in just minutes.


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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