Stafford Loans Explained
A Stafford Loan is a federal student loan offered by the Department of Education to undergraduate and graduate students. Like many other loans, Stafford Loans are aimed to provide students with financial aid to help pay for the cost of their education. Typical costs of education include tuition, books, and living expenses. These expenses rack up during four or more years of school, so acquiring a beneficial loan is quite helpful.
Stafford loans are known for their low fixed interest rates and manageable repayment terms which is exactly the type of loan that a student can benefit considerably from. Acquiring a Stafford Loan may be the key to reducing the stress involved with paying off student loan while trying to kick start a rewarding career.
Types of Stafford Loans
There are two main types of Stafford Loans available to undergraduate and graduate students.
Subsidized Stafford Loan
This type of Stafford Loan is awarded on the basis of financial need required by the student. Since Subsidized Stafford Loans are awarded on the basis of financial need, they carry the benefit of subsidized interest. Subsidized interest refers to the United States Department of Education paying the accrued interest while a student is in school (for at least half of the time spent at school). There are multiple other reasons the federal government pays subsidized interest; for instance, federal payments are still made during a six month "grace period" following graduation or other reasons for leaving school. The other time the U.S. Department of Education may make payments is during a period of deferment which is a postponement of loan payments.
Unsubsidized Stafford Loan
Unsubsidized Stafford Loans are not need-based, meaning that any student who submits FAFSA is eligible to receive aid. The related school decides the amount of aid received based on the cost of attendance as well as factoring in other forms of financial aid received. The student is responsible for paying any interest that is accrued while in school because these loans are unsubsidized. Students have the option to pay interest while in school; however, if the student elects to start payment upon graduation, the interest will accrue and add to the principal amount of the Unsubsidized Stafford Loan during the four or more years of school.
Interest Rates and Other Fees
The current Direct Subsidized Stafford Loan interest rate provided for undergraduate students between July of 2015 and July of 2016 is 4.29%. During the same time period, a direct unsubsidized Stafford loan provided to undergraduates is 4.29% - the same rate as the other undergraduate subsidized loan. If the student in need of aid is a graduate or professional, Direct Unsubsidized Stafford Loans are provided with an interest rate of 5.84%. The interest rate is noticeably higher for graduate students or professionals compared to undergraduate interest rates. Additionally, for all types of Stafford Loans, these rates are fixed throughout the duration of the life of loan.
There are additional fees associated with a Stafford Loan; for instance, a loan fee is assessed to all Direct Subsidized and Unsubsidized Stafford Loans. This loan fee is a percentage of the loan amount; this loan fee is deducted from each loan disbursement. These fees vary depending on the date of disbursement; for example, a loan disbursed between October of 2014 and October of 2015 receives a fee of 1.073% while a loan disbursed between October 2015 and October of 2016 receives a fee of 1.068%. These fees change during every disbursement period.
The Stafford Loan borrowing limits vary of a number of factors, including the year in school, student status, and dependency status of the student. For students dependent on their parents, considerably less loans are available. First year students may receive $5500 maximum with $3500 eligible for subsidization. Second year undergraduates are eligible for $6500 with $4500 for subsidization, and third year students may receive $7500 with $5500 eligible for subsidization. Independent students are eligible for much more aid, but they do not receive additional subsidized aid. First year students may receive $9500 in aid, but only $3500 is eligible for subsidization. Second year students receive up to $10,500 ($4500 subsidized), and third year students are eligible for $12,500 ($5500 subsidized). Independent graduate students may receive $20,500 of unsubsidized loans. For more detailed information please see our borrowing limits resource.
Stafford Loan Eligibility
To apply for a Stafford Loan, the applicant needs to be a United States citizen, must have a Social Security Number (SSN), a high school diploma or GED, complete and sign the Free Applicant for Federal Student Aid (FAFSA), and must not have defaulted on any other federal financial assistance program. In addition, students must display financial need in order to receive a loan. A major stipulation to be eligible for a Stafford Loan is confirmation of enrollment in a university or college of some sort; the minimum enrollment status must be part time.
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