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Do You Know About the Federal Subsidized Student Loan Limit?

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First-time borrowers taking out federal Direct subsidized loans on or after July 1, 2013 are subject to the 150% Direct Subsidized Loan Limit, which limits the amount of time a student is eligible to borrow subsidized loans to 150% of their published program length.

You may have been notified that you lost your subsidy, or you may have just heard about this subsidy limit and are looking for more information.

Who Is Affected?

First-time borrowers in an undergraduate program who take out a new loan are subject to the 150% subsidy limit. A first-time borrower is defined as a borrower with no outstanding balance of principal or interest on a federal Direct loan or Federal Family Education Loan Program (FFELP) loan on July 1, 2013 or on the date they first borrow a Direct loan after July 1, 2013.

For example, each of these students is considered a first-time borrower.

Three types of students who's situations relate to the following text
  1. A new student starting college for the first time on or after July 1, 2013.
  2. A third-year student who did not borrow any Direct loans for the first two years, taking out their first loan on or after July 1, 2013.
  3. A student who returns to school on or after July 1, 2013, and paid off their Direct loans in full before the start date of their new program.

Which Loans Are Affected?

Only Direct subsidized loans are affected by the subsidy limit.

Direct Stafford loans available to undergraduate students are either subsidized or unsubsidized. The difference between the two types of loans is who pays the interest in certain situations.

Direct loans accrue (i.e. build up) interest. Interest is the cost of borrowing money, and is charged as a percentage of the outstanding balance of the loan. At certain times, the government pays the interest for you on subsidized loans.

Interest Accrued header
Graphic depicting that you always pay interest on unsubsidized loans

Unsubsidized
Loans

Graphic depicting that you sometimes pay interest on subsidized loans

Subsidized
Loans

  • Unsubsidized Loans – You, the student loan borrower, are responsible for interest that accrues at all times, including while you're in school.
  • Subsidized Loans – The government may pay your interest during certain periods, such as when you're in school or in deferment. This benefit is called your interest subsidy.

When Is the Limit Reached?

Once you take out your first subsidized loan, you can continue to take out subsidized loans for 150% of your published program length. This means that the actual time limit on your borrowing of subsidized loans varies based on the length of your program. If you don't know how long your program is, talk to your school for more information.

Some examples of common program lengths and their subsidy limits:

  • a 4 year bachelor's degree student can take out subsidized loans for

    6 year subsidy limit

  • a 2 year associate degree student can take out subsidized loans for

    3 year subsidy limit

  • a 1 year certificate degree student can take out subsidized loans for

    1.5 year subsidy limit

Once you reach the subsidy limit for your program, you lose your subsidy on your existing loans if:

  • You do not graduate, and
  • You continue your enrollment in the same undergraduate program, or a program of equal or shorter length.

Keep in mind that if you change your major or transfer to a new school, your limit may change as well. If this happens, the subsidized loans you received in your previous program usually count against your new maximum eligibility period.

Your subsidized loan usage is calculated by your enrollment status.


One academic year enrolled One academic year enrolled
One year of eligibility
Graphic depicting full-time student uses 100% eligibility per academic year enrolled

Full-time
Student

Graphic depicting half-time student uses 50% eligibility per academic year enrolled

Half-time
Student

  • A full-time student taking out a subsidized loan for a full academic year has used one year of eligibility.
  • A half-time student taking out a subsidized loan for a full academic year has used half a year of eligibility.

Only periods for which you receive subsidized loans count against this limit. If you're enrolled full time for four years but only take out subsidized loans for three years, you have only used three years of your eligibility.

In what situations do I lose the subsidy on my existing Direct subsidized loans?

  • yes

    when I reach the subsidy limit and stay enrolled in my program.

  • yes

    when I reach the subsidy limit, didn't graduate, and transfer to an undergraduate program that's the same length or shorter than my prior program.

  • yes

    when I transfer into a shorter program and lose eligibility for Direct subsidized loans because I already received them for a period that is equal to or more than my new, lower, maximum eligibility period.

  • no

    when I reach the subsidy limit, didn't graduate from my prior program, and transfer to a longer program.

  • no

    when I graduate from my program before or at the time I reached the subsidy limit, and enroll in another undergraduate program.


Case Studies

Anna is in a four-year bachelor's degree program. She attends school full time, and takes out subsidized loans each year for six years. When she enrolls for her seventh year, she loses eligibility for additional subsidized loans and becomes responsible for interest that accrues on her existing subsidized loans after the date she lost the subsidy.

Joe is attending a university full time to get a four-year degree, and takes out subsidized loans each year. After three years in his program, he transfers to a two-year program at another school. When he enrolls in his new program, he loses eligibility for additional subsidized loans and becomes responsible for interest accruing on his existing subsidized loans moving forward. This happens because his subsidy limit went from six years in his previous program to three years in his new two-year program.

Sam is in a four-year bachelor's degree program. He attends school full time for two years, taking out subsidized loans both years. After completing the first two years, he takes a break for five years. When he returns to school, he completes his degree in two years. While it took him nine calendar years to complete school, he did not reach the subsidy limit because he was only actually enrolled in school for a total of four years.

What Happens When My Subsidy Is Lost?

If you reach the subsidy limit, you'll get a letter from your servicer notifying you that you have lost your subsidy. But what does it mean to lose the subsidy benefit?

  • You aren't eligible to take out any more subsidized loans for your current program. However, this does not affect your eligibility for unsubsidized loans.
  • The interest on your existing subsidized loans is no longer subsidized by the government when you're in school, a deferment, or in certain income-driven repayment plans. This means you are responsible for all interest that accrues on your subsidized loans moving forward, as of the date of your continued or new enrollment.
  • You aren't required to make payments on the interest that accrues while you are in school. If you don't pay the interest that's accruing on your loans, it will capitalize, or be added to your principal balance at the end of your grace period or deferment. Capitalization costs you more in interest over the life of your loan. Making payments while you're in school can save you money in the long run.

If you reach the subsidy limit and lose the interest subsidy, you become responsible for interest on your subsidized loans in your current program in certain situations.

  • While enrolled in school at least half time
    No

    Before
    losing the interest subsidy

    Yes

    After
    losing the interest subsidy

  • During deferment periods
    No

    Before
    losing the interest subsidy

    Yes

    After
    losing the interest subsidy

  • During certain periods of repayment under Income-Based Repayment or Pay As You Earn repayment plans
    No

    Before
    losing the interest subsidy

    Yes

    After
    losing the interest subsidy

  • During forbearance periods
    Yes

    Before
    losing the interest subsidy

    Yes

    After
    losing the interest subsidy

  • During all other periods of repayment
    Yes

    Before
    losing the interest subsidy

    Yes

    After
    losing the interest subsidy


Note that if you enroll in a longer program after previously losing your subsidy, you may become eligible for additional subsidized loans up to your new, longer, subsidy limit. However, you are still responsible for interest that is accruing on your previous loans that lost the subsidy.

Resources

Federal Student Aid's Time Limitation on Direct Subsidized Loan Eligibility for First-Time Borrowers on or After July 1, 2013 provides more examples, exceptions, and detailed information about the subsidy limit.

Have questions about your specific situation? Log into studentaid.ed.gov to find your enrollment dates and borrowing history, or talk to your school for information about your published program length.


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