Direct Subsidized Loans (sometimes called Subsidized Stafford Loans) are low-cost, fixed-rate federal student loans available to undergraduate students with demonstrated financial need.
Since the federal government pays the interest while you are in school at least half-time, during the grace period, and during periods of authorized deferment, Direct Subsidized Loans are the least expensive federal student loans available.
You need to file the Free Application for Federal Student Aid (FAFSA®) before you can take out federal student loans from the Direct Loans program.
Only undergraduate students with demonstrated financial need are eligible to take out Direct Subsidized Loans. Graduate and professional school students are currently ineligible for Direct Subsidized Loans. (Prior to July 1, 2012, graduate-level students were eligible for up to $8,500 a year in Direct Subsidized Loans.)
The interest rates on Direct Subsidized Loans are fixed and do not change over the life of the loan.
The current fee on Direct Subsidized Loans is 1.059% for loans borrowed through September 30, 2020. Fees are deducted from each loan disbursement. You can ask the college financial aid office to increase the loan amount to cover the fees, up to the annual loan limit.
The federal government does not pay the interest during periods of forbearance.
Annual and aggregate (cumulative) loan limits on the Direct Subsidized Loan are the same for dependent and independent students.
Borrowing Limits — Direct Subsidized Loans
Direct Subsidized Loans have annual and aggregate limits that cannot be increased. However, if you received less than the maximum Subsidized Loan award for your academic level and your financial situation has changed significantly since you filed your FAFSA, you should talk to the financial aid administrator at your school to find out if the subsidized loan award can be increased.
If you are a first-time Direct Loans borrower, you will be required to attend entrance counseling before your loan funds are sent (disbursed) to your school. Some schools require in-person counseling, but many offer online counseling. You will learn about the loan terms, conditions, and requirements during the counseling session.
You will also be required to sign a Master Promissory Note (MPN) before the loans can be disbursed.
The Direct Loan program sends the funds to your school to be credited to your student account. In most cases, the loan will be sent (disbursed) in at least two installments.
Special reminder: There is typically a 30-day delay in disbursing student loans to first-time, first-year borrowers.
Loan funds are credited to your account in this order:
If any loan funds remain in your account, the credit balance will be refunded to you by check, cash, debit card, or electronic funds transfer (EFT) to your bank account. Remember, the refund must be used to pay for your direct and indirect education expenses, such as textbooks, supplies, and equipment.
While you are enrolled in school at least half-time, your Direct Subsidized Loans will be placed into deferment, which means you don’t have to make any payments. In addition, you don’t have to make payments during the 6-month grace period after you graduate or drop below half-time enrollment status.
The federal government pays the interest on your loans during these periods of authorized deferment.
The standard repayment term on Direct Loans is 10 years. However, you can qualify for a longer repayment term if you consolidate the loans or have more than $30,000 in federal student loans.
Direct Subsidized Loans are eligible for all of the different repayment plans offered by the U.S. Department of Education.
Eligible repayment plans:
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