Table of Contents

    What Are Direct Subsidized Loans?

    Federal student loans that are specifically available for undergraduates are called Direct Subsidized Loans or Subsidized Stafford Loans.

    The government decides and sets a fixed rate of interest on these loans. Applicants don’t need a minimum credit score to qualify for it.

    Most importantly, interest doesn’t accrue on the loan when borrowers request deferment after graduation or while they’re in school.

    Eligibility Requirements

    If you’re an undergraduate student with demonstrated financial stress, you’re eligible to apply for Direct Subsidized Loans. The mandatory requirements as set by the Federal Government are:

    • Preferably a citizen of the USA (eligible non-citizens can also apply)
    • You haven’t defaulted on any loans
    • You’re enrolled at least half-time in an approved certificate or degree program
    • You’ve a high school diploma or equivalent certification (eg: GED)
    • You’ve proven financial instability according to the FAFSA application
    • You meet the general requirements for a federal student aid

    Unlike most loans, a Direct Subsidized Loan doesn’t require:

    • A minimum credit score
    • A cosigner
    • A separate application

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    How To Apply?

    First of all, you need to file a FAFSA (Free Application for Federal Student Aid). Once done, you’ll be eligible to apply for student loans from the Direct Loans program offered by the government.

    1. File the FAFSA application on
    2. Get a letter from your school’s office which handles financial aids. Depending on your eligibility, this letter will provide you the details of the availability of funds.
    3. Next, contact your school to have them accept the financial aid that’s been approved.
    4. Review and sign necessary documentation like the MPN (Master Promissory Note).

    Interest Rates And Fees

    A good thing about the interest rates on Direct Subsidized Loans is that they’re fixed, meaning you’ll pay the same rate of interest over the life of the loan.

    As of now, all direct loans disbursed between July 1st, 2019 to June 30th, 2020 feature a fixed interest rate of 4.53%. Moreover, there is a 1.059% loan fee charged on all such loans disbursed between October 1st, 2019 to September 30th , 2020.

    The government funds the interest on these loans under the following circumstances:

    • If you’re enrolled in an approved program at least half-time
    • When you’ve the 6-month grace period after completing school
    • When you’ve applied for the authorized deferment

    How Much Can I Borrow?

    For dependent and independent students, annual and total (cumulative) loan limits on direct subsidized loans are the same. The chart below exhibits the preset limits:

    Annual Limit By YearDependent StudentsIndependent Students
    1st Year Undergraduate$3,500$3,500
    2nd Year Undergraduate$4,500$4,500
    3rd Year Undergraduate$5,500$5,500
    Subsidized Aggregate Limit$23,000

    $23,000 for undergraduates

    $65,500 for graduates/professionals

    How Do I Receive And What Can I Use The Funds For?

    If you’re applying for the first time, you’ll need to attend an entrance counselling session prior to receiving the funds. If eligible, the funds will be transferred to your student account. Additionally, you’ll be required to sign an MPS. 

    The Federal Government will release the funds in two installments, directly credited to your student account. The total sum is sent over in the following order -

    • Tuition and fees
    • Room and board 
    • Additional school expenses

    After disbursing the aforementioned, if there are any leftover funds, the remaining balance will be transferred to you via cash, check, debit card, or EFT. 

    What Are The Eligible Repayment Terms?

    The standard repayment period for all direct loans is 10 years. You can also qualify for an extended term (25 years) if you consolidate all of your loans or have a total of $30,000 or more in federal loans.

    According to the US Department of Education, all Direct Subsidized Loans are eligible to be repaid through any of the below mentioned ways -

    You can also check the Federal Aid website for other eligible repayment plans.


    1. When do I pay back the loan?

    The Federal Government offers multiple repayment plans to suit your requirements. The total payable and term varies on the repayment plan you choose. Ideally, the loan repayment terms range between 10 to 25 years. 

    2. What if I have a problem paying the loan?

    Contact your debt service representative immediately if you are unable to meet your scheduled loan payments as they’ll help you understand the available choices.

    3. Is it possible to cancel?

    Yes, you can cancel your loan in full or a part of it any time by notifying your school before the funds are disbursed. In some cases, you can also cancel it after the funds are released. 

    4. What about discharge or forgiveness for this loan?

    Yes, there are certain conditions that need to be met in case you wish to apply for a forgiveness or discharge of a Direct Subsidized loan. Visit the official website to learn more about the options.

    5. How do I receive the loan?

    The Federal Government will release the funds in two installments, directly credited to your student account. 

    6. Where can I check the information of the funds I’ve received?

    All of the financial aid that you receive is visible under the “My Aid” section of the official website.