Guide on government subsidized student loans

Svetlana May 05 2022

Your future is worth the investment. Government subsidized student loans can help you finance your education so that you can pursue your dreams. With low-interest rates and flexible repayment options, these loans can make it easier for you to manage your finances and focus on your studies. If you're considering taking out a government subsidized loan, here's what you need to know:

What is a government subsidized student loan?

Subsidized loans are for undergraduate students with financial needs as determined by your cost of attendance minus expected family contribution and other financial aid, such as grants or scholarships. While you are in school at least half-time or during deferment periods, Subsidized Loans do not accrue interest.

The federal government "subsidizes" the interest on your Subsidized Loan while you are in school and during certain periods after you leave school. This means that the government pays the interest on your loan while you are in school and during deferment. You are responsible for paying the interest that accrues during grace periods and periods of forbearance. If you don't pay the interest that accrues on your subsidized loan, it will be capitalized (added to your principal balance), and increase the amount you have to repay.

This type of loan is offered by the federal government to students who demonstrate financial need. The government pays the interest on these loans while the student is enrolled in school, during grace periods, and during deferment periods.

Subsidized and Unsubsidized Loans - where is the difference?

For both subsidized and unsubsidized loans, you are responsible for paying the interest that accrues during grace periods and periods of forbearance. If you don't pay the interest that accrues on your subsidized loan, it will be capitalized (added to your principal balance), and increase the amount you have to repay.

The main difference between these two types of loans is that, with subsidized loans, the government pays the interest while you are enrolled in school at least half-time and during deferment periods. With unsubsidized loans, you are responsible for all the interest that accrues from the time the loan is disbursed until it is paid in full.

In general, unsubsidized loans are preferred over subsidized loans because you are not responsible for the interest while you are enrolled in school. However, if you have a need for financial assistance and do not qualify for unsubsidized loans, you may want to consider subsidized loans. Subsidized loans, at the same time, may be a better option if you are having difficulty paying the interest on your unsubsidized loans.

The maximum amount you can borrow in subsidized and unsubsidized loans each year is called your annual loan limit. Your aggregate loan limit is the total amount of all Direct Subsidized Loans and Unsubsidized Direct Loans that you can have outstanding at one time. You're responsible for repaying the entire amount you borrowed, plus any interest and fees.

If you're a dependent undergraduate student, your aggregate loan limit is $31,000. No more than $23,000 of this amount may be in subsidized loans. If you're an independent undergraduate student or a dependent student whose parents are unable to get PLUS Loans, your aggregate loan limit is $57,500. No more than $23,000 of this amount may be in subsidized loans. If you're a graduate or professional student, your aggregate loan limit is $138,500. No more than $65,500 of this amount may be in subsidized loans.

If you're a dependent undergraduate student and your parents are unable to get PLUS Loans, additional unsubsidized Direct Loans are available to you. The maximum annual and aggregate limits on these additional unsubsidized Direct Loans are the same as for other unsubsidized Direct Loans.

Is a subsidized loan better than unsubsidized?

After you graduate from school, the government pays your interest on subsidized loans for up to six months. Interest rates on subsidized loans are lower than on unsubsidized ones. Graduate study is possible with unsubsidized loans. An unsubsidized loan does not need to be repaid until after you finish school.

It all depends on your needs and preference. If you need help paying the interest while you are in school, then a subsidized loan may be the better option for you. If you do not need help paying the interest while you are in school and would prefer to defer repayment until after you graduate, then an unsubsidized loan may be the better option for you.

How do I qualify for a subsidized student loan?

If you decided to take out a subsidized student loan, you will need to fill out the Free Application for Federal Student Aid (FAFSA). Your financial need will be determined by the information you provided on your FAFSA. If you demonstrate financial need, you may be eligible for a subsidized student loan.

To qualify for a government subsidized student loan, you must:

  • Be a U.S. citizen or an eligible noncitizen.
  • Have a valid Social Security number.
  • Be an undergraduate student with demonstrable financial needs.
  • Be enrolled at least half-time at a school that participates in the federal student aid program.
  • Be enrolled in an eligible degree or certificate program.

If all these requirements are met and you are still not sure whether you qualify for a subsidized student loan, you can check with your school's financial aid office.

To apply for this loan after filling in the FAFSA form you have to submit a Master Promissory Note (MPN). A Master Promissory Note is a legal document in which you promise to repay your student loan(s) and any accrued interest and fees to the U.S. Department of Education. It also explains the terms and conditions of your loan(s).

You can complete a Master Promissory Note at studentaid.gov. You'll need to sign in to your account with your FSA ID. If you don't have an FSA ID, you can create one when you start filling out your MPN.

Is it hard to apply for a government subsidized student loan?

The process of applying for a government subsidized student loan is not difficult. All the steps are described above, but in fact, it may be harder than it looks, At first, one of the most difficult parts is to find all the information and links, like the FAFSA form or Master Promissory Note. But if you're attentive enough and follow all the instructions carefully, you'll definitely succeed.

The hardest part about getting a government subsidized student loan is actually qualifying for one. You must demonstrate financial need in order to qualify for this type of loan. If you do not demonstrate financial need, you will not be eligible for a subsidized student loan.

But still, if you are eligible for a subsidized student loan, the process of applying for one is not difficult. All you need to do is fill out the Free Application for Federal Student Aid (FAFSA) and submit a Master Promissory Note (MPN). If you meet all the requirements and follow the instructions carefully, you will definitely be able to get a government subsidized student loan.

What to do after you applied for a loan?

After you have applied for and received your government subsidized student loan, it is important to stay on top of your payments. If you are having trouble making your payments, there are several options available to help you.

If you are having trouble making your monthly payments, you can:

  • Request a deferment or forbearance, which will allow you to temporarily stop or reduce your monthly loan payments.
  • Switch to an income-driven repayment plan, which will base your monthly loan payment on your income.
  • Consolidate your loans, which will combine all of your federal student loans into one loan with one monthly payment.
  • Refinance your loans, which will get you a new loan with a lower interest rate.

It is important to remember that if you are having trouble making your loan payments, you should contact your loan servicer as soon as possible. They will be able to help you figure out which option is best for you and help you avoid defaulting on your loan.

Do I have to pay back a subsidized loan?

You're "waiving" your responsibility to pay back that interest with a tax-free loan during those time intervals. The government stops paying interest when you begin repayment, and your monthly payment includes the original amount of the loan plus interest compounding from that moment.

Thus, if you're able to land a job that pays $50,000 per year or more within a few months of graduation, you'll be responsible for the entire monthly payment. You need to be able to repay that debt in full.

Which student loan should I pay off first subsidized or unsubsidized?

If you have a mix of unsubsidized and subsidized loans, concentrate on paying off the high-interest unsubsidized loans first and then the low-interest subsidized loans. After these are paid down, focus on unsubsidized loans with fewer interest rates. By repaying the loans with the highest interest rates first, you'll minimize the total amount of interest you'll pay on all your loans.

You can use our Student Loan Prepayment Calculator to see how quickly you can pay off your student loans by making additional payments.

If you're struggling to make your monthly student loan payments, contact your loan servicer to discuss your options. You may be able to temporarily postpone (defer) or reduce (forbear) your payments, or you may qualify for a long-term repayment plan. If you're eligible, you can also consolidate your federal student loans into a single Direct Consolidation Loan.

You should always stay current on your student loan payments, but if you're having trouble making ends meet, contact your loan servicer to discuss your options.

Is it better to pay off student loans all at once or overtime?

There is no right or wrong answer to this question. It depends on your personal situation and what works best for you. If you can afford to pay off your student loans all at once, you may save money on interest charges. However, if you need to spread out your payments over time, that is also an option. Ultimately, the important thing is to make your payments on time and in full each month.

If you're struggling to make your monthly student loan payments, contact your loan servicer to discuss your options. You may be able to temporarily postpone (defer) or reduce (forbear) your payments, or you may qualify for a long-term repayment plan. If you're eligible, you can also consolidate your federal student loans into a single Direct Consolidation Loan.

You should always stay current on your student loan payments, but if you're having trouble making ends meet, contact your loan servicer to discuss your options.

What's the catch with subsidized loans?

The biggest "catch" is that you need to demonstrate financial need in order to qualify for a subsidized loan. That can be difficult for graduate and professional students since many of them don't have any income while they're in school.

In order to qualify, you'll need to complete the Free Application for Federal Student Aid (FAFSA). The form will ask for information about your family's finances and your own assets. Your school will use this information to determine how much financial aid you're eligible to receive.

If you're not eligible for a subsidized loan, don't despair – you may still be able to get an unsubsidized loan, which doesn't require a demonstration of financial need. You can also look into private student loans, which are not based on financial need. However, these loans typically have higher interest rates than federal loans, so you'll want to exhaust your federal loan options before turning to private loans.

You may also want to consider other ways to finance your education, such as scholarships or grants. You can search for scholarships on Scholarship Owl.

Conclusion

Government subsidized student loans can be a great way to finance your education, but there are a few things you should keep in mind. First, you'll need to demonstrate financial need in order to qualify. Second, remember that you'll have to pay back the loan (plus interest) after you graduate. And finally, make sure you stay current on your payments – if you're having trouble, contact your loan servicer to discuss your options.