Navigating Subsidized Loans—How Do They Work?

Okay, so I'm starting to look into financial aid and I'm clueless about loans. How do subsidized loans actually work for college, and why are they different from other loans?

Subsidized loans are a type of federal student loan where the government pays the interest while you're in school at least half-time, during the grace period after you leave school, and during any deferment periods. This makes them different from unsubsidized loans, where interest accrues from the date of disbursement and continues to accumulate while you're in school and during grace periods, which you are responsible for paying.

To qualify for a subsidized loan, you have to demonstrate financial need, which is determined by your FAFSA results. The school will decide the amount you can borrow, but it can’t exceed your financial need. Once you're no longer enrolled at least half-time, or you graduate, there's usually a six-month grace period before you need to start repaying the loan. During that time, and while you’re in school, you're not required to pay the interest that accrues.

It’s important to note that there are limits to how much you can borrow in subsidized loans, and these amounts could change year to year. Also, there's a maximum eligibility period, which is 150% of the length of your academic program (for example, six years for a four-year degree program). Always remember to borrow only what you need and to consider your future repayment plan.