The 150% Subsidized Loan Limit Explained

The 150% subsidized loan limit puts a clock on how long you’re eligible to receive taxpayer-subsidized federal student loans, and it’s based on the amount of time it takes to get a degree.

Direct subsidized student loans are federal loans meant for students who demonstrate financial need. They’re the most desirable direct student loan because they don’t accrue interest while you’re in school or during your grace period.

» MORE: Which to borrow: Subsidized vs. unsubsidized student loans?

The limit applies to all first-time borrowers after July 1, 2013. It limits loan eligibility to 150% of (or 1.5 times) the length of your academic program.

Here’s what 150% of subsidized loans means for eligibility at different degree programs:

• Two-year associate degree: Three years of eligibility (150% of 2 years = 3 years).

• Four-year bachelor’s degree: Six years of eligibility (150% of 4 years = 6 years).

• One-year certificate: One-and-a-half years of eligibility (150% of 1 year = 1.5 years).

How your subsidized loan limit can change

Since the limit is based on the length of the degree program you’re enrolled in, your eligibility will change if your degree program does.

“Students who tend to ping-pong between different institutions may lose subsidized loan eligibility,” says Pat Watkins, the director of financial aid at Eckerd College in St. Petersburg, Florida.

If you transfer from a two-year school to a four-year, for example, your eligibility period for subsidized loans would increase from three years to six years. It would decrease if you transfer from a four-year program to a two-year program.

» MORE: Your guide to financial aid

The purpose of the limit is to incentivize students to stay on track and finish their degrees in a reasonable amount of time, says Sean Smith, director of financial aid at Westmont College in Santa Barbara, California.

What happens if you reach your limit

If you reach your limit while you’re still enrolled in school, there are two consequences:

• You’re no longer eligible to take on any additional subsidized loans, but you can still borrow unsubsidized loans.

• You lose the interest subsidy on any loans you currently have. That means any existing subsidized loans you have will begin to accrue interest. For the rest of the time you’re in school and during the grace period, the loan will continue to accrue interest that will be added to the total amount you owe when repayment begins.

» MORE: Government student loans: What are the benefits?