Federal Direct Subsidized Loan


What is a federal direct subsidized loan? If you’re not sure of the answer, you’re not alone. Applying for college can be very difficult, but finding a way to pay for your college tuition, room, and board, and other expenses can be even harder. The FAFSA (free application for federal student aid) allows you to streamline the process and apply for multiple types of federal financial aid at once. One of these is called a subsidized loan.

Subsidized Loan Meaning

Federal Direct Subsidized Loans (also known as  Subsidized Stafford Loan) are federal student loans. These loans are offered through the Direct Loan program and intended for undergraduate students.

The government sets the interest rate. In order to qualify, no minimum credit score is required. The rates are fixed. Also, the maximum amount students can borrow is limited.

As a  beneficiary of Direct Subsidized Loans, the federal government will pay interest. Interest will be paid during the school period (when you are in school at least half-time), during the grace period, and during periods of authorized deferment.

For example, If a student takes a $15,000 of Federal Direct Subsidized Loan, four years later, the loan balance will still be $15,000. The government pays your interest rate so the amount of the loan did not grow.

Federal Direct Subsidized Loans are designed for lower-income, undergraduate borrowers. According to the Department of Education, your school determines the amount of  Federal Direct Subsidized Loans you’re eligible for and the amount borrowed via a subsidized loan cannot exceed financial need.

Apply For a federal direct subsidized loan

Apply for Subsidized Loan


To apply for a loan federal direct subsidized student loan, you need to fill out the FAFSA form. This is the best way to start the subsidized student loan process. Filling out a FAFSA form requires time, so it’s best for students to set aside a few hours of number crunching and calculating.

When the form is filled up, students need to wait for a response. You will receive a financial aid award letter by mail or email from your school’s financial aid office. This letter will summarize your available financial aid,  including Direct Subsidized Loans (if eligible).

After receiving a positive answer, the student needs to contact the school’s financial aid office to accept the financial aid and including student loans.

Also, the student is required that complete a form of counseling. This form describes how the loan works. A student will likely be asked to sign a Master Promissory Note (MPN). They consider a promissory note as a formal acceptance of that plan.

The Federal Direct Subsidized Loan Must Be Repaid.

Students must understand the fact that the federal loan must be repaid. But thanks to a rule of Federal Direct Subsidized Loans, you will enjoy benefits related to interest.

The rules and regulations can vary a bit from school to school, but this is the general path students take when they’re enrolled in a subsidized loan program.

Not all students who petition will be approved. Because of the many benefits that  Federal Direct Subsidized Loans offers, competition can be very high. Students should also, explore other payment options, during the waiting time of the FAFSA response.

Looking in the private sector, applying for scholarships, and otherwise doing fundraising could help a student to prepare, just in case, the application doesn’t go in the way the student hopes.


Only undergraduate students are eligible to take out Federal Direct Subsidized Loans. Also, students must demonstrate financial need as determined by the FAFSA.

Other requirements:

  • A student must be a U.S citizen, national, or eligible non-citizen.
  • Have received a high school diploma or the equivalent (e.g., GED)
  • A student must be enrolled at least half-time in an eligible degree or certificate program.
  • Not in default on any existing federal student loans
  • Meet general eligibility requirements for federal student aid

Not Required:

    • Credit check
    • Cosigner
    • Separate loan application

Ineligible for Direct Subsidized Loans are graduate and professional school student.

Federal Direct Subsidized Loan Interest Rate

Direct subsidized loan interest rate is fixed. Also, the interest rate doesn’t change over the life of the loan.

For the Direct Subsidized Loan, a fixed rate is 5.05% for the period after July 1, 2018, and before July 1, 2019. Fees are deducted from each loan disbursement.

For all information related to a loan and interest rates, you can ask the college financial aid office.


When does the federal government pay the interest on Direct Subsidized Loans?


  • While you are enrolled in school at least half-time
  • During the 6-month grace period after you leave school
  • During periods of authorized deferment

During periods of forbearance, the federal government does not pay the interest.

Can I get more Direct Subsidized Loan funds?

Annual and aggregate limits on Direct Subsidized Loans cannot be increased. You can talk with the financial aid administrator at your school to find out if the subsidized loan award can be increased. This is possible in case that you receive less than the maximum amount, and your financial situation has changed significantly since you filed your FAFSA.

How Loan Funds are Distributed

In case that you are the first-time Direct Loan borrower, you will be required to attend entrance counseling. This must be done before your loan funds are sent (disbursed) to your school. During counseling, you will be introduced to the terms of the loan and requirements.

Before the loans can be disbursed, you will also be required to sign a Master Promissory Note (MPN)

Why Choose a Federal Direct Subsidized Loan 

As a student who needs financial assistance, you will have more opportunities for obtaining a loan. But certainly subsidized loan is one your best option.


Grace Period

When referring to student loans what is a grace period?

A grace period is an option offered by federal loans. After you graduate or drop below half-time enrollment status, you don’t have to make payments during the 6-month grace period.

The federal government pays the interest on your loans during these periods of authorized deferment.

Lower Interest

In general, federal loans offer lower interest rates than private. This is also the case with a direct subsidized loan.

Flexible Repayment Plans

The standard repayment term on Direct Loans is 10 years. If this time period does not suit you, and you want to extend it you can consolidate the loan. Also, you can qualify for a longer repayment term if you have more than $30,000 in federal student loans.

If, in some cases, you struggle to make payments after your grace period ends, please contact the U.S. Department of Education. They may be able to help with one of several repayment plans.