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What is a Subsidized Student Loan?

Written by Mark Kantrowitz | Updated March 11, 2022

Subsidized student loans are among the least expensive student loans. The federal government pays the interest on subsidized student loans during the in-school and grace periods, as well as during authorized deferments.

Borrowers are responsible for paying the interest on subsidized student loans after the loans enter repayment. Borrowers are also responsible for the interest that accrues during forbearances. The federal government pays the interest during deferments but not forbearances.

Examples of Subsidized Student Loans

Subsidized student loans include the subsidized Federal Stafford Loan, the Federal Perkins Loan and the portion of a federal consolidation loan that is attributable to a subsidized Federal Stafford Loan. Federal Perkins loans lose the subsidized interest benefit when consolidated.

The Federal Perkins Loan program ended on September 30, 2017.

The subsidized Federal Stafford Loan has been available only to undergraduate students since July 1, 2012. Graduate students are no longer able to borrow subsidized Federal Stafford Loans, but may borrow unsubsidized Federal Stafford Loans instead.

About one fifth of all student loans are subsidized.

Eligibility for Subsidized Student Loans

Eligibility for subsidized student loans is based on financial need. Recipients of a subsidized student loan must demonstrate financial need, which is the difference between the college’s cost of attendance and the student’s expected family contribution (EFC).

The amount of subsidized student loans a student can receive is capped at the student’s financial need and the loan limits, whichever is lower.

The loan limits for subsidized student loans are generally lower than the loan limits for unsubsidized student loans.

Borrowers of subsidized student loans must be enrolled on at least a half-time basis in a degree or certificate program at a college or university that is eligible for federal student aid.

Repayment begins at the end of the grace period after the student graduates or drops below half-time enrollment. The grace period is six months for subsidized Federal Stafford Loans and nine months for Federal Perkins Loans.

To be eligible for subsidized student loans, the student must also satisfy the general eligibility requirements for federal student aid, including:

  • The student must have a high school diploma, GED or the equivalent
  • The student must be a U.S. citizen or permanent resident
  • The student must maintain satisfactory academic progress (SAP), which requires at least a 2.0 GPA on a 4.0 scale and passing enough classes to be able to graduate within 150% of the normal time-frame for the student’s degree or certificate program
  • The student must not be in default on any previous federal student loan

How to Apply for a Subsidized Student Loan

To apply for the subsidized Federal Stafford Loan, the student must file the Free Application for Federal Student Aid (FAFSA).

The college financial aid office will send the student a financial aid award letter that will specify the amount of subsidized Federal Stafford Loan for which the student is eligible.

The student must then complete entrance counseling at studentaid.gov and sign a Master Promissory Note (MPN).

There may be a 30-day delay before the loan proceeds are disbursed, depending on the college, if the student is a first-time, first-year borrower.

The loan proceeds are credited to the student’s account at the college. The funds are applied first to tuition, required fees and, if the student is living in college owned or operated housing, to room and board. The funds in the student account may also be applied to other college charges, with the student’s permission. If there is a credit balance remaining, the college will refund it to the student within 14 days to pay for other college costs.

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About the author

Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college. Mark writes extensively about student financial aid policy. He has testified before Congress and federal/state agencies about student aid on several occasions. Mark has been quoted in more than 10,000 newspaper and magazine articles. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time Magazine. He was named a Money Hero by Money Magazine. He is the author of five bestselling books about scholarships and financial aid, including How to Appeal for More College Financial Aid, Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship. Mark serves on the editorial board of the Journal of Student Financial Aid and the editorial advisory board of Bottom Line/Personal (a Boardroom, Inc. publication). He is also a member of the board of trustees of the Center for Excellence in Education. Mark previously served as a member of the board of directors of the National Scholarship Providers Association. Mark is currently Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation. Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis. Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU). He has Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.

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