Federal Subsidized Student Loan

The two major student loan programs, the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan Program, offer students and their families a number of federal subsidized student loan options to help cover postsecondary educational expenses. The U.S. Department of Education, under the authority of the federal government, will distribute a budgeted $73 billion worth of federal student loans in 2008 in the form of 14.8 million loans. Many of these loans will be federally subsidized student loans.

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Applying for any fashion of federal educational aid requires a Free Application for Federal Student Aid, which is also commonly referred as a FAFSA. Although the benefits of the federally subsidized loans far outweigh those of their counterparts, the application process is the same.

Benefits of a federal subsidized student loan includes:

• No interest payments while enrolled in school at least half-time
• No interest payments following graduation for six months
• No interest payments for extended periods for qualifying students
• Distributed on a need-based contingency
• Incorporate all traditional benefits of federal student loans

A federal subsidized loan differs from unsubsidized private and federal loans in that borrowers must pay no interest accruals during specific periods of time. For some students, this means four to five years of interest-free loans while attending an accredited postsecondary institution such as college, universities, trade school, alternative school, or vocation training center. With unsubsidized loans, borrowers face interest payments at the inception of a loan, while with subsidized loans, the federal government pays interest accruals for students and their families. Besides the interest-specific benefits intrinsically linked to subsidized loans, all federal loans offer a host of other benefits in comparison to private lending companies. Advantages such as low interest rates, easy renewal, flexible repayment periods, forbearance allowances, consolidation, and refinancing options only compound the attractiveness of subsidized loans from the United States government.

Student and parent financial situations determine the eligibility amounts students are able to borrow from the government in the form of a federal subsidized loan. Students and their parent use the past year’s tax information and current asset holdings to fill out the necessary information on the application online or printed application. Almost 50 percent of American undergraduates receive aid from the government in some form, according to statistics published in 2006 from the US Department of Education statistics. However, of the students who took advantage of the flexibility and affordability of the federal loans, only 34 percent of these borrowers sought the interest benefits of a federal subsidized student loan. Currently, one of the most common forms of unsubsidized loans is available through the Stafford Loan Program. The 2007 College Cost Reduction and Access Act dropped the fixed interest rates on the Stafford federal subsidized student loan to 6 percent for those distributed after July 1, 2008. In July 2011, the rates will reach an astonishingly low 3.4 percent.

Although each lending situation proves fiscally unique, figures can, hypothetically speaking, paint a picture of the financial differences between subsidized and unsubsidized loans. A student utilizing unsubsidized loans will face no financial obligations until six months after graduation. With unsubsidized loans, this is not the case. Essentially, unsubsidized loans will remain interest free until students leave school or graduate, which is an important financial factor when considering the costs of a complete postsecondary education.

Want to learn more about a federal subsidized student loan?
Learn more about your federal subsidized student loan options today.