What is Subsidized Loan?

A subsidized loan is a type of federal student loan that offers certain financial benefits to eligible undergraduate students based on financial need. Here are key features and details about subsidized loans:

• Eligibility: Subsidized loans are available to undergraduate students who demonstrate financial need. Financial need is determined by the information provided on the Free Application for Federal Student Aid (FAFSA).
• Interest Subsidy: The distinguishing feature of subsidized loans is that the federal government pays the interest on the loan during specific periods. The interest subsidy includes: i) In-School Period: While the borrower is enrolled in an eligible degree program at least half-time. ii) Grace Period: The six-month period after the borrower graduates, leaves school, or drops below half-time enrollment.
• Deferment Periods: During authorized periods of deferment, such as economic hardship deferment.
• Loan Limits: Subsidized loan limits are set by the federal government and depend on the student’s academic level (e.g., freshman, sophomore, junior, or senior). These limits cap the amount of subsidized loans a student can borrow.

Subsidized and unsubsidized loans are two types of federal student loans available to eligible students to help cover the cost of higher education. Subsidized loans are need-based, and the government covers the interest during specific periods, making them a more affordable option for eligible students. Unsubsidized loans, on the other hand, are not need-based, and the borrower is responsible for all interest that accrues from the time the loan is disbursed. Both types of loans provide valuable financial assistance to students pursuing higher education.