What Is a Federal Direct Subsidized Student Loan?

Subsidized student loans are a type of federal loan available to undergraduates who, based on their family’s income and financial situation, need additional assistance to cover the cost of college. They accounted for 16% of all student loan borrowing in the 2024-25 academic year, according to the College Board. If you qualify, the government covers your interest charges while you're in school, during your grace period, and during periods of deferment.

Here’s how subsidized loans work and how they compare with other ways to pay for college.

Current private student loan rates

What is a subsidized student loan?

Federal Direct Subsidized Student Loans are a type of federal student loan that undergraduate students with demonstrated financial need can use to pay for college. They're the most affordable student loan option the government provides due to their interest subsidy. 

“With a subsidized loan, the government takes care of your interest payments while you're in school or during approved breaks,” says certified financial planner (CFP) Cathy Lu Espel. “This means your loan balance won't grow during those times.”

Specifically, interest is covered while you're enrolled at least half-time, during your six-month grace period after leaving school, and during periods of deferment.

Interest rate and loan fees

For the 2025-26 academic year, subsidized student loans have a fixed interest rate of 6.39%, which is the lowest interest rate of any federal student loan. This rate applies to every borrower who takes out the loan during the same academic year.

In addition to interest, there’s a loan fee of 1.057%. This fee is deducted from your loan before the funds are disbursed, so you’ll receive slightly less than the amount you borrow.

Eligibility requirements 

Subsidized student loans are only available to undergraduate students. To qualify, you must demonstrate financial need based on the information you submit through the Free Application for Federal Student Aid (FAFSA).

Based on your FAFSA, you’ll receive a Student Aid Index (SAI), a number ranging from -1,500 to 999,999 that schools use to determine your financial need. The lower your SAI, the greater your demonstrated need for assistance. This number is calculated using details like your household income, family size, and any assets held by you, your parents, or your spouse.

To qualify, you also need to be enrolled at least half-time in a school that participates in the federal Direct Loan program. In most cases, that means your school must be accredited and your program must lead to a degree or certificate.

How much can I borrow?

Subsidized student loans have annual borrowing limits between $3,500 and $5,500, based on your year in school. The total amount you can borrow as an undergraduate is limited to $23,000. However, your actual borrowing cap may be lower depending on your school’s total cost of attendance and your level of financial need.

Repayment plan options 

You won’t have to start repaying your subsidized student loans until six months after you leave school or drop below half-time enrollment. Subsidized loans are eligible for all major federal repayment plans, including:

• The Standard Repayment Plan
• The Graduated Repayment Plan
• The Extended Repayment Plan
• Income-Driven Repayment (IDR) plans

Pros and cons of subsidized loans

Subsidized student loans are one of the most affordable ways to borrow for college. The government covers your interest while you're in school as well as during grace periods and certain periods of deferment, which can significantly reduce the total cost of your loan. They also come with relatively low, fixed interest rates and are eligible for all major federal repayment plans.

But these loans have a few limitations. They're only available to undergraduate students who demonstrate financial need, and the borrowing limits are lower than other federal loan options. As a result, you may need to combine them with unsubsidized loans or private student loans to cover your full cost of attendance 

Subsidized vs. unsubsidized loans

Subsidized loans are more affordable than unsubsidized loans because the government covers some portion of your interest. But that benefit comes with stricter eligibility requirements.

“Unlike unsubsidized loans, subsidized loans are considered need-based aid, so the student must demonstrate financial need to be eligible,” says Sarah Austin, policy analyst at the National Association of Student Financial Aid Administrators (NASFAA).

Unsubsidized student loans are available to undergraduate and graduate students. There's no financial need requirement, so anyone who's eligible for federal student aid can borrow. They also come with higher borrowing limits than subsidized loans, but you’re responsible for all the interest that accrues from the moment the loan is disbursed.

Here's a quick breakdown of subsidized loans vs. unsubsidized loans: 

How to apply for a federal subsidized loan

To get a subsidized student loan, you’ll need to submit the FAFSA on StudentAid.gov. This free form gives you access to financial aid for undergraduates and graduate students, such as student loans, grants, and work-study. You'll need to submit it every year you want to receive aid. 

Here are the general steps you can take: 

1. Set up your FSA ID: This is your unique username and password on the Federal Student Aid website. If you're a dependent student, one of your parents will need their own FSA ID to register for the FAFSA, too.
2. Fill out the FAFSA: The FAFSA typically becomes available on Oct. 1 of each year. It asks for your personal and financial information. It can be helpful to have documentation on hand, such as recent tax returns, bank statements, and your Social Security number. 
3. Review and submit your form: Double-check your information before submitting the form. You can list up to 20 schools to receive your FAFSA online. 
4. Receive your financial aid award: Each school that admits you will send you a financial aid package detailing the types of aid and amounts you qualify for. This may include subsidized and unsubsidized loans, grants, or work-study opportunities. Be sure to review each offer carefully so you understand what you’re accepting.