What are Subsidized Student Loans?

Tiffany Manley

Subsidized student loans are loans that a college student takes out and are subsidized in some way by a third party. In the United States and other countries, the government is one popular source for student loan subsidization. If a loan is subsidized, the student does not accrue any interest on the subsidized student loans. This means that once the loan enters into repayment, the student is responsible for paying only the principal balance, not the principal balance plus accrued interest.

A student loan and financial aid application.
A student loan and financial aid application.

Student loans might be used to pay for tuition, books, computers, living expenses, and other expenses incurred by the student during his or her college education. Two types of student loans are generally available, one being subsidized student loans and the other being unsubsidized student loans. Subsidized student loans are based on financial need and have a lower cap on the total amount than unsubsidized student loans do.

A subsidized student loan application form.
A subsidized student loan application form.

Both unsubsidized and subsidized student loans have yearly loan caps, so many students might have a combination of both types of loans. If a student qualifies for subsidized student loans, that will be the first type of student loan issued. Once his or her yearly subsidized student loans have been exhausted, an unsubsidized student loan might be issued. Together, these loans would cover many, if not all, of the expenses associated with that year’s pursuit of a college degree.

In order to qualify for a subsidized student loan and many other types of financial aid in the U.S., a student should complete the Free Application for Federal Student Aid. This application details demographic, household, tax and school information. It is important to note that many schools have deadlines for filing this paperwork in order to qualify for the next year’s aid. After this paperwork has been processed, the student will be asked to fill out a Master Promissory Note, which details the loan terms. Students must reapply for unsubsidized and subsidized student loans every year while in school.

There usually is a loan fee deducted from the loan proceeds to help guarantee the loan. The proceeds are then generally distributed to a student’s school. Repayment of the loans usually begins six months after the student is done attending school.

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