There are many types of loans to help students pay the costs of higher education. With their usually lower interest rates and more generous conditions, federal student loans are the first place families should look for funding not covered by scholarships and grants. See College Loans: Private Vs. Federal .
Federal Payday Loans Loans and Federal Direct Loans are two types of loans that are offered through the federal government.
Federal Direct and Payday Loans have certain characteristics in common. Both types of loans:
are offered by the US Department of Education to borrowers who have demonstrated sufficient financial needs (note that direct non-subsidized loans do not require a financial need; direct subsidized loans do this). Are managed through the financial aid posts of institutions participating in the federal student loan program.
Requires completing the FAFSA (free application for federal student assistance) and submitting a promissory note stating your intention to repay the loan.
Must be applied for and approved for each academic year – giving borrowers a separate loan for each year of training.
Must be used for qualified educational expenses such as tuition and fees, books, board and lodging and other necessary expenses related to higher education.
Cannot be used to pay for secondary education.
Are available for eligible graduate students (only Federal Payday Loans Loans and Direct Unsubsidized Loans).
are eligible for loan consolidation, as long as the borrower meets all the necessary criteria (read
Time to consolidate your student loans? ). are eligible for loan forgiveness, in some cases (see
Debt forgiveness: how do you get out of your student loan ). Have taxpayers deduct interest paid on their loans, regardless of whether they specify their deductions.
How they differ
Who is eligible?
Payday Loans loans are only available to students with significant financial needs, as determined by their answers to the FAFSA and the guidelines of their school. Direct subsidized loans also require proven needs, but a larger number of incomes may be eligible. All three types of loans are open to qualified students; graduate students can only receive Payday Loans Loans or Direct Unsubsidized Loans.
All federal Payday Loans loans are subsidized by the government, which means that the government pays the interest that is accrued while the student is at least in school. The government also pays interest during school for Direct Subsidized Loans, but not for unsubsidized diversity. Read Federal Direct Loans: subsidized vs. Non-subsidized for more information. Cost.
Payday Loans loans do not charge for borrowing or default. Federal Direct Loans usually charge a license fee of 1.67%, which is deducted from the payment of the loan. Interest rates
. For the 2015-2016 school year, the Federal Direct Loan rates were 4.29% for both subsidized and unsubsidized undergraduate loans, and 5.84% for graduate and professional students. The interest rates are now linked to the ten-year treasury, plus a fixed margin. Click here to view the current interest rates for Stafford loans. Payday Loans loans charge a fixed rate of 5% for all borrowers. Availabilty.
The pool of available funds for Payday Loans loan institutions is more limited than that available for Federal Direct Loans. Although loans from Payday Loans have federal limits for how much a student can borrow – both annually and cumulatively – institutions usually set a limit that is significantly below these levels to maintain their funding pool. Loan limits.
Federal Direct Loans have different limits for graduates compared to students, and subsidized versus non-subsidized loans. See Federal Direct Loan Limits . “Independent” students, those who file their own income tax return and claim themselves, are eligible for larger unsubsidized loans than those declared as dependent on someone else’s tax return. Payday Loans loans have one annual limit for students and a larger one for students. Payday Loans is not distinguished by undergraduate status or grad school type. The dollar limits for direct non-subsidized loans are divided as follows:
Graduate and professional students have higher lending limits. The cumulative loan limits for graduates and professional students include all undergraduate loans for student loans.
Direct non-subsidized loan – graduate and professional students
Direct subsidized loans are only available to undergraduate students and have lower credit limits than non-subsidized loans. The tax status makes no difference in what they can borrow:
The credit period for Payday Loans Loans is always 10 years. Although this is often the case for Stafford loans, in some cases students can extend their payments over a longer period, up to a maximum of 25 years.
The bottom line If you are an undergraduate whose family income makes you eligible for a Payday Loans loan, then you are probably also eligible for an Direct Subsidized Loan. Which should you choose?
For 2015-2016, the Payday Loans loan with a fixed-rate period of 5% is higher than the Federal Direct Loan interest for students (4.29%), but the Payday Loans loans have no initial costs. If you don’t need money from either of them, do the math to determine which one offers the better deal for you. As a freshman and sophomore, you can borrow more from Payday Loans; in the following years the credit limits are the same.
For grad students, if you meet the Payday Loans loan conditions, you get a better interest rate than with a Direct Unsubsidized Loan (5% compared to 5. 84%). With a Payday Loans you don’t have to pay interest until after graduation; with a Direct Unsubsidized Loan (since you are not eligible for a subsidized loan), you will. On the other hand, the Direct Unsubsidized Loan has higher credit limits.
If you do not meet the financial criteria for a Payday Loans, your only choice is a direct subsidized loan. Depending on your income, the non-subsidized loan may be your only option.
For more information about each type of loan – and other federal student analysis options – visit the website of the federal student analysis at www. student grants. gov or consult the financial auxiliaries of your university. Click here for a comparison table.