Subsidized student loans from the U.S. government largely come in the form of subsidized Stafford loans. Such subsidized loans were first created with the U.S. Higher Education Act of 1965 and the Federal Guaranteed Student Loan program. The subsidized student loan program was renamed the "Robert T. Stafford Student Loan program" in 1988.
Subsidized student loans are made available to students who need financial assistance to pay for college and university expenses and fall within a certain income bracket preset by the U.S. government. Unlike unsubsidized loans and private loans, the federal government pays (subsidizes) the interest on the loans while the students are in school and meet the loan requirements. Without subsidized student loans, many low- to mid-income students would need to take out private or unsubsidized student loans. Such loans generally have a higher interest rate and a less flexible payback structure and schedule, thus increasing the economic hardship of low-income students.
There are two types of subsidized student loans: The Federal Perkins Loan and the Stafford loan. Both the Perkins and Stafford loans are also available as unsubsidized student loans, though subsidized Perkins and Stafford loans are the most desired. Subsidized Perkins loans are need-based, and are eligible for the U.S. federal loan cancellation program, and have a nine-month grace period. Subsidized Stafford loans are not need-based and have a six-month grace period.
Both the subsidized Perkinss loan and the subsidized Stafford loan, as well as most student scholarships and private loans, require students and their parents or caregivers to first fill out the Free Application for Federal Student Aid (FAFSA). This form becomes available from the federal government at the beginning of each calendar year. Students should fill out the FAFSA as soon as possible in order to be able to apply for subsidized student loans by their school's financial aid application. On the FAFSA, students should note that they are interested in both types of subsidized loans. Their university's financial aid office will then process the necessary paperwork to determine their eligibility for subsidized financial assistance.
The popularity of subsidized student loans has grown as the price of higher education has risen. The top 10 student loan providers in the U.S. lend a minimum of $1 billion to students, with some of the top lenders averaging an annual loan load of over $4 billion.
Students interested in subsidized student loans should consider the role that such loans will play in their overall financial aid package. Subsidized student loans have limits set by the federal government and should not be expected to necessarily cover the entire cost of a student's educational expenses. Instead, students need to outline their total cost of education and what percentage of those expenses they are able to cover using subsidized loans. This will help determine if students need to pursue further financial aid measures, such as private scholarships.