Federal Stafford loans, also known as Direct Loans, are a popular way to help pay for education. They are shorthand for subsidized and unsubsidized loans. More than 33 million borrowers in the United States hold one (or more) of these loans, according to the Department of Education.
Stafford Loans are government-backed federal loans, which means you’re borrowing directly from the U.S. Department of Education. That’s also who you’ll repay when the time comes. The federal government also makes 92 percent of all student loans. The government also employs a number of “student loan services” to manage customer support and loan processing. (Private student loans have varying interest rates and repayment periods, but they may be a good way to supplement the funding when you’ve exhausted scholarships, grants, and government financial aid.)
If you are researching Stafford Loans, it is important to understand that there are two kinds of Stafford Loans.
- Subsidized Stafford Loan
- Unsubsidized Stafford Loan
What is a Subsidized Loan?
Subsidized Loans are loans for college students with financial needs, as calculated by your cost of attendance minus the planned family contribution and other financial assistance (such as grants or scholarships). Subsidized loans do not accrue interest at least half-time or during deferment periods while you are in college.
Can you get a Subsidized Student Loan for Grad School?
For graduate school, you can’t get subsidized loans. You used to be able to take out these loans, on which the government pays the interest when you are in school, but subsidized loans were phased out on July 1, 2012, for graduate students. Undergraduate students can still receive loans that are subsidized.
In the past, though, it offered a couple of discounted student loans for students pursuing an advanced degree:
- Subsidized Stafford Loans for graduate students: These Subsidized Stafford Loans, also known as Direct Loans, were provided to graduate students who showed financial need until July 2012. They were then cut in order to open up money for various forms of federal student assistance.
- Federal Perkins Loans: Funds were created by the Federal Perkins Loan Program that allowed colleges to give low-income students extra loans. With a government interest subsidy, Federal Perkins Loans arrived and were open to both undergraduate and graduate students. The Federal Perkins Loan Scheme, sadly, expired in 2017 and was not extended by Congress, meaning this discounted option for student loans is no longer open.
What is the difference between Subsidized and Unsubsidized student loans in a Master’s program?
| Direct Subsidized Loan | Direct Unsubsidized Loan | |
| Eligible Students | Undergraduate Students | Undergraduate and Graduate Students |
| Borrowing amount limits | ||
| Interest rate | The current fixed annual percentage rate is 4.99% for loans disbursed on or after July 1, 2022, through July 1, 2023. | The current fixed graduate or professional degree interest rate is 6.54%. These rates apply to loans disbursed on or after July 1, 2022, through July 1, 2023. |
| Loan qualifications | You must demonstrate financial need, as determined by the information you supply when you submit the Free Application for Federal Student Aid or FAFSA. | Any student can borrow, regardless of financial need. |
| Maximum eligibility period | First-time borrowers on or after July 1, 2012, can take out loans until 150% of the published length of their academic program. This is equal to six years for a typical four-year program or three years for a typical two-year program. | There is no time limit on using these loans. |
What types of Federal Loans are available for a Master’s program?
Unsubsidized Loans
An unsubsidized loan is another form of federal loan. For an unsubsidized loan, from the moment when the loan money is disbursed into your account, you are responsible for the interest. The interest is of no help; you are accountable for the whole volume.
So, as you want to repay, you pay the initial amount plus the debt that has accrued to you since the loan was paid. Of course, these will add up to thousands of dollars more over the duration of the debt to be repaid.
Direct PLUS loans
Direct PLUS loans have a set interest rate and are not subsidized, meaning that once the student is enrolled in school, interest accrues. For handling a Direct PLUS Loan, called an origination fee, you would be paid a fee. Prior to you or the school accessing the money, an origination fee is removed from the loan disbursement.
There are two types of Direct PLUS loans: the Grad PLUS Loan and the Parent PLUS loan.
- Grad PLUS loans enable college and technical students to pay for their own education by borrowing funds. Graduate students can repay Grad PLUS loans, up to the full cost of attendance, to offset any expenses not currently covered by other financial assistance or grants.
- Parent PLUS loans allow parents of dependent students to borrow money up to the full cost of attendance to cover any expenses not currently covered by the student’s financial support program. A total cap is not imposed by the program for how much parents can borrow. Parent PLUS loans are the parents’ financial obligation, not the student’s.
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