What is a Subsidized Loan?

Subsidized Loans Save You Significant Money on Interest

Student loan paperwork
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In a subsidized loan, the federal government pays the interest while you are in college or while the loan is in deferment. This type is very different than unsubsidized loans, where interest begins to accrue as soon as the loan is taken out and you are responsible for paying off the interest that built up while you were in school. 

How Long Do I Qualify For a Subsidized Loan?

There is a limit on how long you can take out subsidized loans while in school.

The general rule is that you can get subsidized loans for 150% of the established length of your school program. For instance, if you were pursuing your bachelor's degree in a four-year program, but changed your major and needed more time before you could graduate, you could get subsidized loans for only six years of schooling. If you went into the seventh year, you would not be eligible for a subsidized loan. 

If you go beyond that 150% guidelines, you will exhaust your maximum eligibility period. After that point, the government will stop paying the interest on the loans while you're in school. 

How Much Can I Borrow With a Subsidized Loan?

Your college or university determines the kinds of loans you get and the amount you are eligible for during the school year. The loan maximums can change every year on how much you are eligible to receive. The amount you are allotted is based on whether or not you are a dependent or independent borrower and what year you are in at school.


How Do I Get My Subsidized Loan?

If you are eligible for federal student loans and your school has determined an amount for you, your university will send you information on how to accept the loan amount. 

You will likely have to fill out a Master Promissory Note (MPN) that outlines the terms of the loan and repayment; you'll need to sign that you have read the terms and understand what you owe.


You will also have to undergo entrance counseling, a tool used to ensure you understand your obligations when you take out the loan.

When the paperwork is complete, and the loan is ready for disbursement, the school will first take out necessary amounts for your tuition, fees and room and board. If there is money left over, the money is returned to you for your educational needs, such as buying books or other expenses. 

What if I Don't Need the Amount I'm Offered?

If your loan amount is more than you need for school, you can cancel all or a portion of the loan by reaching out to your financial aid office. Be sure to review your promissory note, as there are often particular deadlines and forms you will need to sign to cancel any part of a loan. 

When Are Payments Due?

For subsidized loans, you have a grace period of about six months after you graduate or leave school. After that period, you begin making monthly payments. Under traditional payment plans, you have ten years to pay back the loan in full.

If circumstances cause you to defer or go to a different payment plan, such as income-contingent repayment, that time span can be extended. 

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