Complete Guide to Stafford Loans for College Students
The Federal Stafford loan is a federal low-interest student loan available for students through the Direct Loan Program (DLP). It’s the most popular form of federal financial aid where a borrower receives funding directly from the U.S. Department of Education at participating schools. The loans are also known as Direct Stafford Loans or Federal Direct Stafford Loans.
There are two types of Stafford loans:
Subsidized Loans are for students with financial need. These are need-based loans focusing on financial help for students who have low-income level and do not have opportunity to pay the interest. In this situation the government pays the interest for a borrower. A student is not charged interest while at school and during six-month grace periods after graduation and in the situation of loan deferments. It’s necessary to attend a school for a certain amount of time – at least half time for this type of loan.
Unsubsidized Loans do not require from students to have financial need. In fact it doesn’t matter. Millions of people qualify for Unsubsidized Stafford student loans regardless financial situation: high or low income level. In comparison with subsidized loans a borrower must pay the interest too. It’s the difference between subsidized/unsubsidized loans (whether a borrower or the federal government pays the interest). You have two ways to pay the interest. First, you can pay while you’re in school and during six-month grace periods or in situations of deferment or forbearance. And the second option is to let the interest accrue. In this case it will be capitalized i.e. paying interest on interest. Try to avoid capitalizing the interest and pay it while you’re in school. The reason for this is that if you prefer to not to pay the interest as it accrues, the total amount of money borrowed will be higher (because of capitalizing).
Note: Federal Stafford loans are no credit check student loans. They are dealing with need-based criteria. It means you can still apply for this type of federal financial aid even with bad credit score or no credit history.
The Process
It’s important to understand how the process of funding works. For both subsidized and unsubsidized Stafford loans the first step is to fill out the Free Application for Federal Student Aid (FAFSA). This form is sent to your school.
Your school reviews the results of your FAFSA and determines the amount that can be borrowed. Schools use the information from the FAFSA to determine how much money they can offer to a student.
After a school has received funding from the U.S. Department of Education it’s time for getting the loan. How do you get the money? You will be paid through your school. However your school will use the loan money first to pay for tuition and other fees (living expenses for room etc). If any money remains you will receive a check.
How to Apply For a Stafford Loan
The first step to get the financial aid is filling out and submitting the FAFSA. The form is available online. Most students use this online version to complete the application correctly. Schools receive and analyze the information from the FAFSA to make a decision about the total amount of money a borrower will receive. Later on a student receives an award letter containing data about the type of loan available.
How Much Money Can Be Borrowed
Stafford loans have limits for the maximum amount of money a student can borrow. Limits are variable and depend on certain factors:
- Year in school (first year, second year etc.)
- Status of a student: dependent/independent
- Whether you’re graduate and professional student or not
The following chart provides information about loan limits for both subsidized and unsubsidized Stafford loans.
| Year | Dependent Undergraduate Student (except students whose parents are unable to obtain PLUS Loans) | Independent Undergraduate Student (and dependent students whose parents are unable to obtain PLUS Loans) | Graduate and Professional Degree Student |
| First Year | $5,500—No more than $3,500 of this amount may be in subsidized loans. | $9,500—No more than $3,500 of this amount may be in subsidized loans. | $20,500—No more than $8,500 of this amount may be in subsidized loans. |
| Second year | $6,500—No more than $4,500 of this amount may be in subsidized loans. | $10,500—No more than $4,500 of this amount may be in subsidized loans. | |
| Third and beyond (each year). | $7,500—No more than $5,500 of this amount may be in subsidized loans. | $12,500—No more than $5,500 of this amount may be in subsidized loans. | |
| Maximum Total Debt from Stafford Loans When You Graduate (aggregate loan limits) | $31,000—No more than $23,000 of this amount may be in subsidized loans. | $57,500—No more than $23,000 of this amount may be in subsidized loans. | $138,500—No more than $65,500 of this amount may be in subsidized loans. The graduate debt limit includes Stafford Loans received for undergraduate study. |
Source: According to www.studentaid.ed.gov
Current Interest Rates
Subsidized Loans:
- Undergraduate students – If the first disbursement of your subsidized loan is between July 1, 2011 and June 30, 2012, the interest rate on your loan is fixed at 3.4%.
- Graduate and professional degree students – The interest rate is fixed at 6.8%.
Unsubsidized Loans – The interest rate is fixed at 6.8% for all borrowers (undergraduate and graduate).
|
Interest Rates On Subsidized Loans For Undergraduate and Graduate Students |
||
| Year | Subsidized Stafford Loans (Undergraduate) | Subsidized Stafford Loans (Graduate) |
| 2009-10 | 5.6% | 6.8% |
| 2010-11 | 4.5% | 6.8% |
| 2011-12 | 3.4% | 6.8% |
| 2012-13 | 6.8% | 6.8% |
Additional Fee
For both subsidized and unsubsidized Stafford loans there is an additional loan origination fee that is certain amount of percentage of each loan. For loans first disbursed on or after July 1, 2010, the loan origination fee is 1.0%. The fee is deducted proportionately from each loan disbursement. Disclosure statement contains all the information about the origination fee.
When to Pay Back
After a student graduates, leaves school, or drops below half-time enrollment, it’s a grace period time. It means that a borrower has six months before he begins repayment. However this period is not for relaxing because you will receive repayment information about when to start repaying your loan.
The information is provided by the loan servicer. The loan servicer contacts borrowers after their first direct loan received and informs about the status of a loan. The truth is that a borrower repays the loan to a servicer. If you’re not sure who your loan servicer is, you can look it up on www.nslds.ed.gov.
If You Can’t Pay
Sometimes people face serious problems in life. And if a student has a loan that must be paid but does not have opportunity to pay the loan in time because of troubles, loan deferment and forbearance could be considered as good repayment options.
Loan deferment allows a borrower to stop making payments for some period of time. Loan forbearance allows a borrower to lower the payments.
The Direct Stafford loans are flexible and affordable financial aid options for students who want to attend college or university (even with bad credit score).
