For many students, subsidized student loans can help pay for college. You might be eligible to receive this type of loan if you demonstrate financial need, as determined by the Free Application for Federal Student Aid (FAFSA). Here’s what you need to know about this type of loan and how it can help you with your education.
What are subsidized student loans?
Subsidized student loans are federal loans that are available to students who demonstrate financial need. They are interest-free while you are in school and there is no charge for late payment or overpayment of your loan. You can also defer your payments if you become unemployed, disabled, or meet certain other conditions.
If you qualify for a subsidized student loan, the government will pay all of your interest while you’re in school and still meet the eligibility criteria (usually at least half-time enrollment). The government pays this interest because it wants students to be able to complete their education without worrying about how they’ll pay off their debt after graduation.
How do I get a subsidized student loan?
If you are eligible, you will receive a notice from the Department of Education and have to apply for a subsidized student loan every year. You must be enrolled at least half-time (6 credits) at an accredited college or university to be eligible.
You can apply online on www.studentloans.gov using your FSA ID or create one if you don’t already have one by clicking on “Create FSA ID” on that site’s home page. Once approved, the funds will be sent directly to your school.
What is the current interest rate for subsidized student loans?
At the time of this blog post, the current interest rate for subsidized student loans is 3.76%. The 10-year Treasury note rate determines the rate, so if you take out a subsidized loan today, your monthly payment will be the same for the life of your loan and won’t change if you’re approved for another month or two. In addition, your interest rate isn’t affected by your credit score or income level—the only factor that affects whether or not you’re eligible to get a subsidized student loan is whether or not you qualify as an undergraduate student.
Are federally subsidized student loans tax-deductible?
Do federally subsidized student loans qualify for the tuition & fees tax deduction?
Federal subsidized student loans are not tax-deductible. However, if you took out an unsubsidized student loan, then yes! That’s right—the interest paid on your federal unsubsidized student loan is eligible for the tuition & fees deduction. The same applies to private loans that meet certain criteria (such as being a “qualified education loan”). So if you have a private student loan that qualifies, then paying it off with funds from your own pockets will likely save you some money in taxes each year.
A subsidized student loan could help you pay for your education.
Subsidized student loans are available to students who demonstrate financial need, and the government pays the interest on subsidized loans while you’re in school, making it easier for you to manage your expenses. What’s more, if you can’t make your loan payments during school—perhaps because of a job loss or other financial hardship—the government will cover some or all of those costs until you can get back on track.
Your education is an investment in your future. Make sure you know what resources are available to you, including federal loans, scholarships, and grants. If you’re going to take out a loan, consider whether it’s better for you to get a subsidized student loan or an unsubsidized student loan.