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This Is One of the Best Types of Student Loans You Can Start Off With


Blog Author ProfilePeppyWallet Editorial Team
Posted on August 11, 2019
PeppyWallet aims to help you make the best financial decisions when it's time to make them. In order to help maintain our platform and services, some or all of the products featured in this post are from our Product Partners. Our opinions however, are our own, and featuring specific products does not influence our analysis.
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Editorial Note: This content is neither commissioned nor provided by any financial institution. Any analyses, reviews, opinions, or recommendations that are expressed in this article are those of the author's alone, and may not have been approved, endorsed or reviewed by the financial institution(s) mentioned in this post.

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.



Here are some of the best refinance lenders


Lender
Variable APR
Earnest
2.14-6.79%1
CommonBond
2.41-7.95%2
LendKey
2.24-6.67%3

1Important Disclosures for Earnest

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.45% APR (with Auto Pay) to 7.49% APR (with Auto Pay). Variable rate loan rates range from 2.14% APR (with Auto Pay) to 6.79% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of September 5, 2019, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/15/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on our student loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.

2Important Disclosures for CommonBond

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.37% effective July 10, 2019.

3Important Disclosures for LendKey

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any education institution.


The team members at PeppyWallet pride themselves in finding and suggesting services and products that they believe are of high quality and have the potential to positively change a student loan borrower's financial circumstances. We may earn an advertising fee or sales commission when we recommend various services and products to you, which is how we maintain our site and education platform. Be sure to read the fine print to help you understand your product's or service's terms and conditions. PeppyWallet is not an investment advisor or lender, and is not involved in the investment or loan approval process, and does not make investment related or credit decisions. Any terms and rates which are listed on our website are our latest estimates but are subject to change at any time, and we cannot guarantee that they are up-to-date.