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Subsidized and unsubsidized loans are federal student loans for eligible students to help cover the cost of higher education at a four-year college or university, community college, or trade, career, or technical school. The U.S. Department of Education offers eligible students at participating schools Direct Subsidized Loans and Direct Unsubsidized Loans. (Some people refer to these loans as Stafford Loans or Direct Stafford Loans.)

What’s the difference between Direct Subsidized Loans and Direct Unsubsidized Loans?

In short, Direct Subsidized Loans have slightly better terms to help out students with financial need.

Here’s a quick overview of Direct Subsidized Loans:

  • Direct Subsidized Loans are available to undergraduate students with financial need.
  • Your school determines the amount you can borrow, and the amount may not exceed your financial need.
  • The U.S. Department of Education pays the interest on a Direct Subsidized Loan
  • while you’re in school at least half-time,
  • for the first six months after you leave school (referred to as a grace period*), and
  • during a period of deferment (a postponement of loan payments).
  • *Note: If you received a Direct Subsidized Loan that was first disbursed between July 1, 2012, and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period. If you choose not to pay the interest that accrues during your grace period, the interest will be added to your principal balance.

    Here’s a quick overview of Direct Unsubsidized Loans:

  • Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need.
  • Your school determines the amount you can borrow based on your cost of attendance and other financial aid you receive.
  • You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods.
  • If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan).
  • Am I eligible for a Direct Subsidized Loan or a Direct Unsubsidized Loan?

    To receive either type of loan, you must be enrolled at least half-time at a school that participates in the Direct Loan Program. Generally, you must also be enrolled in a program that leads to a degree or certificate awarded by the school. Direct Subsidized Loans are available only to undergraduate students who have financial need. Direct Unsubsidized Loans are available to both undergraduates and graduate or professional degree students. You are not required to show financial need to receive a Direct Unsubsidized Loan.

    Is there a time limit on how long I can receive loans?

    If you are a first-time borrower on or after July 1, 2013, there is a limit on the maximum period of time (measured in academic years) that you can receive Direct Subsidized Loans. This time limit does not apply to Direct Unsubsidized Loans or Direct PLUS Loans. If this limit applies to you, you may not receive Direct Subsidized Loans for more than 150 percent of the published length of your program. This is called your “maximum eligibility period.” Your maximum eligibility period is generally based on the published length of your current program. You can usually find the published length of any program of study in your school’s catalog.

    For example, if you are enrolled in a four-year bachelor’s degree program, the maximum period for which you can receive Direct Subsidized Loans is six years (150 percent of 4 years = 6 years). If you are enrolled in a two-year associate degree program, the maximum period for which you can receive Direct Subsidized Loans is three years (150 percent of 2 years = 3 years).

    Because your maximum eligibility period is based on the length of your current program of study, your maximum eligibility period can change if you change to a program that has a different length. Also, if you receive Direct Subsidized Loans for one program and then change to another program, the Direct Subsidized Loans you received for the earlier program will generally count toward your new maximum eligibility period.

    Certain types of enrollment may cause you to become responsible for the interest that accrues on your Direct Subsidized Loans when the U.S. Department of Education usually would have paid it. These enrollment patterns are described below.

    Do I become responsible for paying the interest that accrues on my Direct Subsidized Loans because . . .

    Yes

    No

    I am no longer eligible for Direct Subsidized Loans and I stay enrolled in my current program?

    I am no longer eligible for Direct Subsidized Loans, did not graduate from my prior program, and am enrolled in an undergraduate program that is the same length or shorter than my prior program?

    I transferred into the shorter program and lost eligibility for Direct Subsidized Loans because I have received Direct Subsidized Loans for a period that equals or exceeds my new, lower maximum eligibility period, which is based on the length of the new program?

    I was no longer eligible for Direct Subsidized Loans, did not graduate from my prior program, and am enrolled in an undergraduate program that is longer than my prior program?

    I lose eligibility for Direct Subsidized Loans and immediately withdraw from my program?

    I graduated from my prior program prior to or upon meeting the 150 percent limit, and enroll in an undergraduate program that is the same length or shorter than my prior program?

    I enroll in a graduate or professional program?

    I enroll in preparatory coursework that I am required to complete to enroll in a graduate or professional program?

    I enroll in a teacher certification program (where my school does not award an academic credential)?

    How do I apply for a loan?

    To apply for a Direct Loan, you must first complete and submit the Free Application for Federal Student Aid (FAFSA®). Your school will use the information from your FAFSA to determine how much student aid you are eligible to receive. Direct Loans are generally included as part of your financial aid package.

    How much can I borrow?

    Your school determines the loan type(s), if any, and the actual loan amount you are eligible to receive each academic year. However, there are limits on the amount in subsidized and unsubsidized loans that you may be eligible to receive each academic year (annual loan limits) and the total amounts that you may borrow for undergraduate and graduate study (aggregate loan limits). The actual loan amount you are eligible to receive each academic year may be less than the annual loan limit. These limits vary depending on

  • what year you are in school and
  • whether you are a dependent or independent student.
  • If you are a dependent student whose parents are ineligible for a Direct PLUS Loan, you may be able to receive additional Direct Unsubsidized Loan funds.

    The following chart shows the annual and aggregate limits for subsidized and unsubsidized loans.

    Year

    Dependent Students (except students whose parents are unable to obtain PLUS Loans)

    Independent Students (and dependent undergraduate students whose parents are unable to obtain PLUS Loans)

    First-Year Undergraduate Annual Loan Limit

    $5, 500—No more than $3, 500 of this amount may be in subsidized loans.

    $9, 500—No more than $3, 500 of this amount may be in subsidized loans.

    Second-Year Undergraduate Annual Loan Limit

    $6, 500—No more than $4, 500 of this amount may be in subsidized loans.

    $10, 500—No more than $4, 500 of this amount may be in subsidized loans.

    Third-Year and Beyond Undergraduate Annual Loan Limit

    $7, 500—No more than $5, 500 of this amount may be in subsidized loans.

    $12, 500—No more than $5, 500 of this amount may be in subsidized loans.

    See also:

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