What are Federal Direct Subsidized and Unsubsidized Loans?
A Direct Subsidized or Unsubsidized Loan is a student loan in the student’s name for educational purposes. The loan funds come from the federal government. It is categorized as either “subsidized” or “unsubsidized.” Loan repayment is deferred while the student is enrolled in school at least half-time and during the 6-month grace period after the student either graduates or drops below half-time. When the grace period is finished, the student starts repayment on the loan. However, if the student decides to go to graduate school, the loan will go back into deferment providing they are enrolled at least half time.
What is the difference between a “Subsidized” and an “Unsubsidized” Direct Loan?
The financial need of the student determines whether a loan is subsidized. The federal government “subsidizes” the interest of the loan, i.e. pays the interest, while the student is enrolled at least half-time. Change as of 2012-2013: Interest will now accrue for the subsidized Stafford loan once the student enters the grace period.
An unsubsidized loan is not awarded based on financial need. The student will be charged interest on the loan from the time it disburses until it is paid in full. The student has two options: To defer interest payments until graduation in which case the interest will be added to the principal amount of the loan or to pay the interest while in school and not have it accrue.
How much can the student borrow in Direct Subsidized and Unsubsidized Loans?
Dependent undergraduates have a Direct Loan maximum amount that they can borrow per academic year: For 2013-2014, the amounts are as follows:
*** In addition, many students may be eligible for an additional $2,000 in Direct Unsubsidized Loan.
Independent undergraduates and students whose parent is denied the Direct PLUS loan for parents can borrow the same amounts as above, plus an additional $4000 of Direct Unsubsidized Loan for freshmen and sophomores, and $5000 for juniors and seniors.
What is the interest rate?
Current interest rates for the 2012-2013 academic year: (2013-2014 TBA)
Direct Subsidized Loans have a fixed interest rate of 3.4%,
Direct Unsubsidized Loans have a fixed interest rate of 6.8%
For both types, there is an origination fee of 1.051%. This amount is deducted from the loan at disbursement. Please take this into consideration when calculating your bill.
How does the student apply?
Where do I go to complete entrance counseling and sign the MPN?
The Department of Education has a website called Studentloans.gov which it has established for students to manage their Direct Loans. (Beware--there is also a studentloans.com site which is NOT the government site). The student should SIGN IN with their name, social security number, date of birth and FAFSA PIN. Remember the Federal Direct loan are in the STUDENT’S name.
You will need to use your FAFSA PIN to access the site and to sign the MPN. If you do not have a PIN, you may obtain one at PIN web site.
IMPORTANT:On the website, there is important information about browser requirements under "What You Need". If you do not have a compatible browser, various features will not work.