If you’re about to take out your first student loan, be sure to consider direct subsidized federal student loans, also known as subsidized Stafford Loans.
Direct subsidized federal student loans are one of the best types of student loans. These are low-interest loans that help pay for higher education at community colleges, trade schools, technical schools as well as four-year colleges or universities.
Students who qualify for direct subsidized student loans can borrow from the U.S. Department of Education at participating schools. Before applying for a direct subsidized federal student loan, here’s what to know:
1. Backing and Grace Period
The government backs direct subsidized loans. It gives the student a grace period of six months after he or she graduates before it starts accruing interest. The government subsidizes or backs the interest during this period.
Even part-time students are not charged interest while taking courses. If a full-time student takes an average of five courses worth of units at your school, and if you took 2.5 to three courses worth of units and qualify under your FAFSA based on your current financial situation, you may want to consider a direct subsidized student loan.
2. Interest Rate
The interest rate is fixed throughout the course of the loan and resets once a year, typically on July 1st. The interest rate for Subsidized Direct loans originated on or after July 1, 2019, but before July 1, 2020, is 4.53%.
3. Maximum Loan Amount
For direct subsidized loans, there is a total lifetime maximum amount an undergraduate student can borrow, which is currently $20,500. On a more granular level, the cap also depends on your school’s grade level and other factors, such as your total cost of attendance and enrollment status.
4. Qualifications
Direct subsidized student loans are only given to qualifying undergraduate students who demonstrate critical financial need, which is determined by the student's FAFSA at the time of application.
What Next?
Direct subsidized student loans are a great alternative to many popular types of federal student loans. They have no prepayment penalties, similar to other popular types of loans. But unlike a private loan, federal student loans do not require students to show their credit history or obtain a co-signer if they do not qualify for the loan by themselves.
Since subsidized direct student loans are federal loans, they offer loan forgiveness and flexible repayment plans. If you think you would benefit by having one issued, be sure to send in your FAFSA as soon as possible. You can complete the FAFSA online, through this website.
