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College can be expensive. But thankfully, several funding options are available — including free aid, like scholarships and grants, as well as student loans that you’ll have to repay in the future.
If you need to borrow for school, it’s usually best to rely on federal Direct Subsidized Loans first before turning to other types of federal loans. This is mainly because the government covers the interest on subsidized loans while you’re in school, which can reduce your total repayment costs.
If you’re wondering how to get a subsidized loan, here’s what you should know:
- Start with Direct Subsidized Loans: Here’s Why
- How to qualify for need-based financial aid
- Direct Subsidized Loan eligibility
- How to get a subsidized loan
- How long does it take to get a subsidized student loan?
- How are subsidized loans distributed?
- Repayment of federal subsidized loans
- Consider private loans to fill the gaps
Start with Direct Subsidized Loans: Here’s Why
If you need to take out student loans, it’s a good idea to exhaust any Direct Subsidized Loans available to you before considering other types of federal and private student loans — mainly because these loans provide several benefits that can keep your costs low while in school as well as simplify your future repayment.
Some advantages include:
- Subsidized interest: The government will cover any interest that accrues on a Direct Subsidized Loan while you’re in school at least half time, during your grace period, and during any deferment periods.
- Fixed interest rates: All federal student loans — including subsidized loans — come with fixed interest rates. This means your rate will stay the same throughout the life of the loan, and your payment amount will only change if you sign up for a different repayment plan.
- No credit check: Unlike private student loans, Direct Subsidized Loans don’t require a credit check. This means you can get a subsidized loan even if you have poor or no credit as long as you meet the other requirements.
- Cosigner not required: Direct Subsidized Loans also don’t require a cosigner.
- Grace period: Subsidized loans come with a six-month grace period that begins after you leave school or drop below half-time enrollment. During this time, you won’t have to make payments, and the government will pay any interest that accrues.
- Flexible repayment options: Like other federal loans, Direct Subsidized Loans provide multiple repayment plan options in addition to the standard 10-year repayment plan. For example, you could sign up for an income-driven repayment (IDR) plan that bases your payments on your income. Or you might choose a graduated repayment plan that starts with lower payments that gradually increase over time — which could be helpful if you expect to earn more in the future.
- Access to federal benefits: If you take out a subsidized loan, you’ll also have access to major federal benefits and protections — such as deferment and forbearance options.
- Potential loan forgiveness: Several student loan forgiveness programs are available to federal loan borrowers. For example, if you work for a government or nonprofit organization and make qualifying payments for 10 years, you might be eligible for Public Service Loan Forgiveness.
Here’s how Direct Subsidized Loans compare to the other main types of federal student loans:
| Loan type | Who qualifies? | Interest rates (2022-23) | Loan limits |
|---|---|---|---|
| Direct Subsidized Loans | Undergrad students with financial need | 4.99* | $3,500 to $5,500 per year |
| Direct Unsubsidized Loans | Undergrad, graduate, and professional students | Undergrad: 4.99%* Graduate and professional: 6.54%* | Dependent undergrad: $5,500 to $7,500 per year ($31,000 total limit) Independent undergrad: $9,500 to $12,500 per school year ($57,500 total limit) Graduate and professional: $20,500 per year ($138,500 total limit) |
| Direct PLUS Loans | Parents, graduate students, and professional students | 7.54%* | Cost of attendance minus any other financial aid received |
| *Federal student loan rates for the 2022-23 academic school year. | |||
Learn More: Hidden Costs of Federal Direct Unsubsidized Student Loans
Next, look to Direct Unsubsidized Loans
After you’ve exhausted any Direct Subsidized Loans that you’re eligible for, Direct Unsubsidized Loans are a good second choice. You might also consider Direct PLUS Loans or private student loans to fill any financial gaps left over.
Here’s how these other loans work:
- Direct Unsubsidized Loans are available to undergraduate, graduate, and professional students, regardless of financial need. Unlike with subsidized loans, you’re responsible for all the interest that accrues on unsubsidized loans.
- Direct PLUS Loans come in two categories: Grad PLUS Loans for students who want to pay for grad school and Parent PLUS Loans for parents who want to cover their child’s education costs. PLUS Loans typically come with higher interest rates compared to Direct Subsidized and Unsubsidized Loans. They also require a credit check.
- Private student loans can be a helpful option once you’ve exhausted your federal loan limits. Unlike with most federal loans, you’ll generally need good to excellent credit to qualify for a private student loan — a good credit score is usually considered to be 700 or higher. Also keep in mind that private student loans don’t come with federal benefits.
All federal student loans come with fixed rates that are set by Congress each year. Here’s how federal loan interest rates have fluctuated over time:
Generally, borrowers who have good credit and who opt for shorter repayment terms receive the most favorable rates.
Check Out: Federal Stafford Loans
How to qualify for need-based financial aid
Need-based financial aid is reserved for students with financial need. For example, you must have demonstrable financial need to be eligible for Pell Grants or Direct Subsidized Loans.
- Determine your cost of attendance. This is the estimate of how much you’ll pay in tuition, fees, room and board, books, supplies, and other eligible expenses.
- Determine your Expected Family Contribution (EFC). This is the amount of money your household can afford to pay toward your education. Your school calculates this number based on the information you provide in the Free Application for Federal Student Aid (FAFSA). Keep in mind that this isn’t how much your family will actually have to pay — it’s simply an index number your school uses to determine how much financial aid you qualify for.
- Subtract your EFC from your cost of attendance. This is how much you can receive in need-based aid.
For example, if your cost of attendance is $16,000 and your EFC is $11,000, you’d be eligible for up to $5,000 in need-based aid.
Keep in mind that student loan limits will also affect how much need-based aid you can get. For example, while you might have substantial financial need, you can only borrow up to an aggregate limit of $23,000 in Direct Subsidized Loans.
Here are the student loan limits that you can expect for federal loans. Note that these take into account both your total limits per school year as well as how much you can get specifically in subsidized loans during your undergraduate studies if you have financial need.
| Year | Dependent students | Independent students (or dependent students whose parents can’t obtain PLUS Loans) |
|---|---|---|
| First-year undergrad annual loan limit | $5,500 ($3,500 in subsidized loans) | $9,500 ($3,500 of in subsidized loans) |
| Second-year undergrad annual loan limit | $6,500 ($4,500 in subsidized loans) | $10,500 ($4,500 in subsidized loans) |
| Third-year and beyond undergrad annual loan limit | $7,500 ($5,500 in subsidized loans) | $12,500 ($5,500 in subsidized loans) |
| Graduate or professional students annual loan limit | N/A | $20,500 (unsubsidized only) |
| Subsidized and unsubsidized aggregate loan limit | $31,000 ($23,000 in subsidized loans) | Undergrad: $57,500 ($23,000 in subsidized loans) Graduate or professional: $138,500* ($65,500 in subsidized loans) |
| *Note: Graduate aggregate limit includes all federal loans received for undergraduate study. | ||
Direct Subsidized Loan eligibility
Your school will use the information you provide in the FAFSA to determine if you’re eligible for a Direct Subsidized Loan. To qualify, you must:
- Be a U.S. citizen or an eligible noncitizen
- Have a valid Social Security number
- Be an undergraduate student with demonstrable financial need
- 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
Also keep in mind that some aid is given on a first-come, first-served basis — so it’s a good idea to submit the FAFSA as early as possible, especially if you have high financial need.
Learn More: How to Apply for Federal and Private Student Loans
How to get a subsidized loan
If you’re ready to apply for a Direct Subsidized Loan, follow these four steps:
- Fill out the FAFSA. Be prepared to provide your personal and financial information when completing the FAFSA — for example, your Social Security number and most recent tax return information. If you’re a dependent student, you’ll also have to provide one of your parent’s information. Your school will use your FAFSA results to determine what federal student loans — such as Direct Subsidized Loans — and other federal financial aid you’re eligible for.
- Apply for scholarships and grants. Unlike student loans, college scholarships and grants don’t have to be repaid — which makes them a great way to pay for college. There’s no limit to how many scholarships and grants you can get, so it’s a good idea to apply for as many as possible. You might also qualify for school-based scholarships depending on your FAFSA results.
- Take out federal student loans. After you submit the FAFSA, your school will send you a financial aid award letter detailing what federal student loans and other federal financial aid you’re eligible for. You can then decide which aid you’d like to accept.
- Use private student loans to fill any gaps. After you’ve exhausted your scholarship, grant, and federal student loan options, private student loans could help fill any financial gaps left over. Keep in mind that you’ll typically need good to excellent credit to qualify for a private student loan.
No matter what type of student loan you get, it’s important to consider how much that loan will cost you. This way, you can be prepared for any added expenses.
You can find out how much you’ll owe over the life of your federal or private student loans using our student loan calculator below.
Enter your loan information to calculate how much you could pay
With a $ loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the loan, assuming you're making full payments while in school.
How long does it take to get a subsidized student loan?
It can take anywhere from a few weeks to a few months to get a federal student loan. Once you submit the FAFSA, it should usually take about three weeks to receive your financial aid award letter. If you haven’t heard from your school after three weeks, it’s a good idea to contact the financial aid office.
Note that schools typically disburse federal student loans once per term — this could be once per semester, trimester, or quarter, depending on your school. Your school will use your federal funds to cover any tuition or fees that you owe. Most schools will refund any remaining balance to you within a couple of weeks of receiving your loan funds.
Check Out: Independent vs. Dependent Student: Which Are You?
How are subsidized loans distributed?
Any federal student loans that you accept will be distributed directly to your school and will first be used to cover any tuition and fees that you owe. If there’s a remaining balance, it will be refunded to you to use for other education expenses.
Learn More: Federal vs. Private Student Loans: 5 Differences
Repayment of federal subsidized loans
After you leave school or drop below half-time enrollment, your Direct Subsidized Loan will enter a six-month grace period. During this time, the government will cover any interest that accrues on the loan, and you won’t have to make payments.
Following this, your loan will start out on the standard 10-year repayment plan. But several other repayment options are also available, which provide flexibility as well as assistance if you’re struggling to make your payments. Here are some repayment plans to consider:
- Income-driven repayment plan: On an IDR plan, your payments will be based on your income — typically 10% to 20% of your discretionary income. Additionally, you can have any remaining forgiven after 20 or 25 years, depending on the plan.
- Graduated repayment plan: With this type of plan, your payments will start out lower and will increase every two years. This could be a helpful option if you expect to earn a higher income in the future.
- Extended repayment plan: This plan lets you spread out your loan payments over 25 years, which could greatly reduce monthly payments. You can choose between a standard extended repayment plan with fixed monthly payments or a graduated extended repayment plan with payments that will gradually increase over time. Just keep in mind that you’ll pay more in interest over time with a longer repayment term.
If you’re having a hard time making your payments, other options include:
- Deferment: This is a way to temporarily postpone your loan payments. Some scenarios that could make you eligible for deferment include undergoing cancer treatments, facing economic hardship, losing your job, or enrolling in an approved fellowship program. Note that with a Direct Subsidized Loan, you won’t have to pay interest that accrues during a deferment period.
- Forbearance: This is another option for pausing your loan payments. Two types of forbearance are available for federal loans: mandatory forbearance that your servicer must grant in certain situations, and general (or discretionary) forbearance that’s granted on a case-by-case basis. Keep in mind that unlike with deferment, you’re responsible for all the interest that accrues during a forbearance period.
- Loan forgiveness: If you meet certain requirements, you might be eligible for a federal student loan forgiveness program. Many of these programs are geared toward borrowers working in specific careers, such as doctors, lawyers, and teachers.
Check Out: Student Loan Deferment vs. Forbearance: How to Choose
Consider private loans to fill the gaps
After you’ve exhausted your scholarship, grant, and federal student loan options, private student loans could help cover any remaining expenses. While these loans don’t come with federal protections, they do offer some benefits of their own — for example, you can apply at any time, and you might be able to borrow more than you’d get with a federal loan.
If you decide to take out a private student loan, be sure to consider as many lenders as possible to find the right loan for your needs. Credible makes this easy — you can compare your prequalified rates from multiple lenders in two minutes.
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Ariha Setalvad contributed to the reporting for this article.
