Do Graduate Students Get Subsidized Loans?

Federal student loans are a primary financial resource for many students pursuing higher education. This article clarifies eligibility for subsidized loans and explores other federal financial aid options available to graduate students.

Subsidized Loan Eligibility

Direct Subsidized Loans are a form of federal financial aid where the U.S. Department of Education covers the interest that accrues while the student is enrolled at least half-time, during the grace period after leaving school, and during periods of deferment. Eligibility for these loans is exclusively limited to undergraduate students who demonstrate financial need as determined by their Free Application for Federal Student Aid (FAFSA) submission. The government’s payment of interest during these periods helps to reduce the overall cost of borrowing for eligible undergraduates.

Graduate students are not eligible to receive new Direct Subsidized Loans. While a student may have received these loans during their undergraduate studies, they cannot obtain additional subsidized loan funds for their graduate-level coursework. Existing Direct Subsidized Loans from an undergraduate degree program will continue to apply to those specific loans, but do not enable new subsidized borrowing for graduate education.

Federal Loan Options for Graduate Students

Graduate students have access to specific federal loan programs for their advanced studies. Primary options include Direct Unsubsidized Loans and Grad PLUS Loans.

Direct Unsubsidized Loans are available to both undergraduate and graduate students, irrespective of demonstrated financial need. Unlike subsidized loans, interest on Direct Unsubsidized Loans begins accruing immediately after the funds are disbursed, even while the student is in school, during grace periods, or during deferment. For graduate students, the annual borrowing limit for Direct Unsubsidized Loans is $20,500. There is also an aggregate limit, which includes all federal student loans received for undergraduate and graduate study, capped at $138,500.

Grad PLUS Loans are credit-based federal loans for graduate or professional students. To qualify, applicants must undergo a credit check; those with an adverse credit history may need to secure an endorser. These loans carry higher interest rates than Direct Unsubsidized Loans, and an origination fee is deducted from the loan amount before disbursement. The maximum amount a student can borrow through a Grad PLUS Loan is the total cost of attendance at their institution, minus any other financial aid received.

Applying for Federal Student Loans

Accessing federal student loans begins with completing the Free Application for Federal Student Aid (FAFSA). This application serves as the gateway to federal student aid programs, including Direct Unsubsidized Loans and Grad PLUS Loans. The FAFSA collects financial information to determine a student’s eligibility for various federal aid options.

To complete the FAFSA, applicants need a Federal Student Aid (FSA) ID, their Social Security Number, and federal income tax returns from two years prior. Students also provide financial information such as bank statements and records of investments. For graduate students, the FAFSA primarily confirms eligibility for unsubsidized and PLUS loan programs, as financial need is not a requirement for these specific loan types. The FAFSA form can be accessed on the StudentAid.gov website.

Loan Disbursement and Repayment

Following FAFSA processing and school review, the financial aid office sends an award letter to the student. This letter details the specific types and amounts of federal financial aid, including loans, that the student is eligible to receive.

Loan funds are sent directly to the student’s school to cover tuition, fees, and other institutional charges. Any remaining balance is then disbursed to the student for other educational expenses. Federal loans are disbursed in at least two installments over the academic year, aligning with the school’s payment schedule. Before receiving federal student loan funds, borrowers are required to complete Entrance Counseling. This online session provides information regarding the terms and conditions of their loans, outlines their repayment obligations, and explains their rights and responsibilities as a borrower.

Repayment for federal student loans begins after the student graduates, leaves school, or drops below half-time enrollment. There is a six-month grace period following these events before the first loan payment is due. During this grace period, interest may accrue, particularly on unsubsidized loans.