The rising costs of a college education have more students than ever borrowed to cover their expenses. While some students opt for loans from private lenders, an estimated 42.3 million borrowers have taken out loans from the US Department of Education. Of these, 32.1 million borrowers owe Federal Direct Loans.
These loans offer many benefits, including flexible repayment options, low interest rates, the option to consolidate loans, and forbearance and deferment programs. Federal Direct Loans can be subsidized or not subsidized; Before you borrow, it is important to understand how the two types of loans compare. (See Coll. Loans: private or federal .)
Who is eligible for Federal Direct Loans?
There are a few requirements that you must meet to be eligible for a Federal Direct loan. For both subsidized and non-subsidized loans, borrowers must:
- register at least half-time at a school participating in the Federal Direct Loan program.
- Be an American citizen or eligible noncitizen.
- Provide a valid social security number.
- Ensure sufficient academic progress.
- Have completed a high school diploma or its equivalence.
- Don’t default on existing federal loans.
- Be registered with the selective service (for men aged 18 to 25).
The two largest differences between subsidized and non-subsidized direct loans have to do with the financial need and the registration status. Direct subsidized loans are only available for students with proven financial needs. Both students and graduate students can apply for a Direct Unsubsidized Loan and there is no financial necessity.
To apply for both types of loans, you must complete the free application for Federal Student Aid (FAFSA). This form contains information about your income and assets and that of your parents. Your school uses your FAFSA to determine the types of loans you are eligible for and the extent to which you are eligible to borrow. (See An iSam Spa Line for student loans and the FAFSA. )
Loan guidelines for subsidized versus non-subsidized direct loans
The Federal Direct Loan program has maximum limits for how much you can borrow each year with a subsidized or non-subsidized loan. There is also a total leeSam Spadeimite.
Starting in 2017, first-year students can borrow a combined $ 5,500 subsidized and unsubsidized loans if they are still financially dependent on their parents. Of that amount, only $ 3,500 can be subsidized loans. Independent students – and dependent students whose parents are not eligible for Direct PLUS loans – can borrow up to $ 9,500 for their first year of undergraduate study. Again, subsidized loans are limited to $ 3, 500 of that amount.
The leeSam Spadeimit is increasing for every following year of registration. The total total subsidized loan limit is $ 23,000 for dependent students, with another $ 8,000 admitted in unsubsidized loans. For independent students, the total limit is raised to $ 57,500 with the same limit of $ 23,000 on subsidized loans. Graduate or professional students can borrow up to $ 138,500 in Direct Loans, with $ 65,500 of them being subsidized. (See Your Kid’s College loan: who must pay the bill? )
If you provide a loan for the first time after 1 July 2013, there is a limit to the number of academic years that you can obtain. Receive direct subsidized loans. The maximum eligibility period is 150% of the published length of your program. In other words, if you sign up for a four-year course, the longest you can receive is direct subsidized loans for six years. Such a limit does not apply to direct non-subsidized loans.
Repaid subsidized and non-subsidized loans
Federal loans are known to have some of the lowest interest rates, especially when compared to certain private lenders who can charge borrowers a two-digit APR. Both directly subsidized and non-subsidized loans currently have an APR of 45% for students. The APR rises to 6% for graduate and professional students. And unlike some private student loans, these rates are fixed, meaning that they do not change during the term of the loan.
One thing to note about interest rates: the federal government pays the interest due on Direct Granted loans for the first six months after you leave the school and during deferment periods. You are responsible for the interest if you defer a non-subsidized loan, or if you place both types of loans in tolerance.
Regarding reimbursement, you have several options. Unless you ask your lender for another option, you will automatically be enrolled in the standard repayment plan. With this plan, your credit term is set at a maximum of ten years, with payments that are distributed equally every month. The graduated repayment plan, for comparison, starts your payments lower and then increases them step by step. This plan also has a duration of up to 10 years, but due to the way payments are structured, you pay more than with the Standard option.
There are also several income-related payment plans for students that need some flexibility in how much they pay each month. For example, income-based repayment (IBR) sets your payments at 10-15% of your monthly disposable income and allows you to stretch the repayment for 20 or 25 years. The advantage of income-driven plans is that they can lower your monthly payment – but there is a catch. The longer it takes to repay the loans, the more you pay in interest. And if your plan makes it possible for part of your loan to be canceled, you may have to declare it as taxable income. (See Do you really have student loans? )
The advantage is that the interest paid on student loans is tax deductible. For 2017, you can deduct a maximum of $ 2,500 in interest paid for a qualified student loan and you do not need to specify to receive this deduction. of your refund. If you have paid $ 600 or more in student loan interest for the year, you will receive a 1098-E form from your loan manager to use for tax returns.
The bottom line
Both directly subsidized and non-subsidized loans can be useful to pay for college, but one might be more appropriate than the other, based on your financial needs. Remember that each loan type must ultimately be paid back with interest, so think carefully about how much you will need to borrow and which repayment option will work best for your budget.