Federal Loans: Stafford Loans
Stafford Loans are made to undergraduate and graduate students who are enrolled at least half-time. They are administered through the Federal Direct Loan Program (FDLP) which provides funding to students directly from U.S. Department of Education. There are two types of Stafford loans, subsidized and unsubsidized. Subsidized loans have a lower interest rate and do not accrue interest until the loan repayment begins whereas unsubsidized loans begin accruing interest once they are dispersed.
Who is eligible for a Stafford loan?
Students who are a U.S. Citizen, permanent resident or eligible non-citizen can receive a Stafford loan. Eligibility for a subsidized loan is based on financial need. A subsidized loan may be offered if the student’s cost to attend the school is greater than the student’s Expected Family Contribution (calculated as a result of the FAFSA application) plus other financial aid the student is expected to receive. Unsubsidized Stafford loans do not require financial need.
How does a student get a Stafford loan?
As for all federal student aid, students must submit the Free Application for Student Aid (FAFSA). All schools that the student indicated on their FASA will receive a Student Aid Report (SAR). This report will be used by the schools to determine eligibility for a subsidized Stafford loan as well as all other federal aid. Schools that have accepted the student will notify the student of their eligibility for both subsidized and unsubsidized Stafford loans. If a student accepts the loan offer, they will sign a promissory note which states the conditions for the loan and the repayment terms.
How much can a student borrow?
An undergraduate student who is a dependent of their parents and who’s parents qualify for PLUS loan can borrow up to a total of $13,500 in subsidized loans for a typical four-year program. They can borrow up to a total of $19,500 as a combination of subsidized and unsubsidized Stafford loans.
An undergraduate student who is NOT a dependent of their parent’s or a dependent student whose parents don’t qualify for a PLUS loan can borrow up to a total of $13,500 in subsidized loans and a total of up to $32,500 as a combination of subsidized and unsubsidized Stafford loans.
Graduate and professional degree students can borrow up to $8500 in subsidized and $20,500 in subsidized and unsubsidized loans. Students are limited to borrowing $138,500 for undergraduate school and graduate school combined unless they are enrolled in certain health profession programs. Students in these programs can borrow up to $224,000.
Note that the totals that students can borrow may vary for any year.
What is the interest rate when does it start accruing?
Unsubsidized loans have a higher interest rate than subsidized loans and have recently run in the upper six percent range. Subsidized loans for undergraduates accrue interest at a fixed percent that changes year to year but has recently been around 4.5 percent. Rates for graduate students have been running higher – generally in the high six percent range. Interest on subsidized loans is paid for by the federal government during school and during a deferment period while interest on unsubsidized loans begins accruing when the money is disbursed. The interest may be added to the loan balance or paid as it accrues.
Are there any fees?
There may be a 1.5 percent origination fee which will be deducted from the amount that is disbursed.
When does a student need to pay back their loans?
Students get a six-month grace period after they graduate, leave school or drop below half-time before they have to start repaying their loans. For subsidized loans, the interest does not begin accruing until the grace period is over. Loans must be repaid in 10-25 years depending on amount owed and the type of repayment plan chosen.
Stafford Loan Tips
- Students should only borrow what they need – the amount that is borrowed can be less than the offered amount to avoid unnecessary interest payments.
- Loans must be repaid - even if the student doesn’t graduate or can’t find a job.
- Students should consider consolidating loans after graduation – it can save money and give a student more repayment options.
Resources
Student Aid on the Web - Stafford Loan Program – This US Department of Education resources provides detailed description of the Stafford Loan programs.
U.S. Department of Education Direct Loan program – Describes details of all Direct Loan Program loans including Stafford Loans.
Federal Direct Student Loan Consolidation Information Center – Provides information and application to combine Federal Direct Stafford loans.
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