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Student Loans

Federal Direct Stafford Loans

Updated Jul 07, 2020   |   5-min read

Direct Stafford Loans are federal student loans available to undergraduate and graduate students. If you’re borrowing money for school, a Stafford Loan provides the most affordable way to fund your education.

Your credit score and income do not matter when applying for a Stafford Loan, unlike with most private student loans. However, you must be enrolled at least half-time in a school that participates in the Direct Loan program. Students who want to apply for Stafford Loans must complete a Free Application for Federal Student Aid (FAFSA).

Your Stafford Loan will be serviced by one of a small number of authorized loan servicers that work with the U.S. Department of Education. You don’t get to choose which lender services your loan, but the servicer is the one you’ll repay over time. The funds, however, always come from the federal government.

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Subsidized Stafford Loans vs. Unsubsidized Stafford Loans

Many students and their families are often confused by the two types of Stafford Loans. So what’s the difference between subsidized and unsubsidized Stafford Loans? Let’s break it down:

  • ​Direct Subsidized Loans: These loans are available only to undergraduate students who have demonstrated financial need. The federal government pays interest on these loans while students are attending school as well as during qualifying periods of deferment after graduation. The fact the loans do not accrue interest provides substantial savings.
  • Direct Unsubsidized Loans: Both undergraduate and graduate students are eligible for these loans. There is no requirement to show financial need, although students must still complete the FAFSA to be eligible to borrow.

When they are available, you should always max out your Direct Subsidized Loans first. With unsubsidized loans, if you don’t pay interest during school, interest continues to accrue and is capitalized. This means the interest you owe is added to your loan balance, so you pay interest on the interest. This is not the case with Direct Subsidized Loans.

How Much Money Can I Borrow With a Stafford Loan?

The amount you can borrow will be determined by factors including the cost of your schooling, your financial need, and whether you are attending an undergraduate or graduate program, but maximum annual amounts range from $5,500 to $20,500.

When you receive a financial aid award letter from your school, it will specify the total amount of Direct Stafford Loans you’re eligible for.

Both Direct Subsidized Loans and Direct Unsubsidized Loans also impose borrowing limits. There are both annual and aggregate limits to how much students can borrow. The chart below shows the maximum loan amount based on year of education:

YearDependent students except if parents can’t obtain PLUS loansIndependent students and dependent undergrads with parents ineligible for PLUS loans
Loan limit for first-year undergradsUp to $5,500, a maximum of $3,500 of which can be in subsidized loans.Up to $9,500, a maximum of $3,500 of which can be in subsidized loans.
Loan limit for second-year undergradsUp to $6,500, a maximum of $4,500 of which can be in subsidized loans.Up to $10,500, a maximum of $4,500 of which can be in subsidized loans.
Loan limit for undergrads in year 3 and beyondUp to $7,500, a maximum of $5,500 of which can be in subsidized loans.Up to $12,500, a maximum of $45,500 of which can be in subsidized loans.
Loan limit for grad students or professional studentsNot Applicable. All grad students/professional students are independentUp to $20,500, none of which can be subsidized.
Aggregate limit for subsidized and unsubsidized loansUp to $31,000, a maximum of $23,000 of which can be in subsidized loans.Up to $57,500 for undergraduates or $138,500 for grad students or professional students. Aggregate limits for subsidized loans are $23,000 for undergrads and $65,000 total for grad/professional students (including loans taken as an undergrad)

>> Already hit federal limits? You can use private student loans to cover other school expenses

What are the Rates & Fees on Stafford Loans?

Stafford Loans have low fixed interest rates set by the government. The interest rate does not change throughout the life of the loan and is the same for all borrowers, regardless of credit history or income.

Current interest rates are 5.05% for Stafford Loans for undergraduates and 6.6% for Stafford Loans for grad students. All loans charge a loan origination fee of 1.066%.

What are the Repayment Options for a Stafford Loan?

Like all federal student loans, Stafford Loans are eligible for many repayment plans offered by the Department of Education. These include:

  • Standard Repayment: Borrowers pay a fixed amount for 10 years
  • Extended Repayment: Borrowers can repay over 25 years if they owe more than $30,000 in Direct Loans
  • Graduated Repayment: Borrowers repay their loan over 10 years, but payments start small and increase every two years, ideally as income rises
  • Income-Driven Repayment: Monthly payments are based on household income and family size. The maximum repayment period of is between 20 and 25 years – depending which income-driven plan is chosen – after which the remaining loan balance is forgiven

Students may also be eligible for Public Service Loan Forgiveness, which allows borrowers in qualifying jobs to have their debt forgiven after 120 on-time payments.

Finally, students experiencing financial hardships could potentially put loans into deferment or forbearance to temporarily pause payments until they get back on their feet.

Is a Stafford Loan Right for You?

Stafford Loans do tend to have lower interest rates than other types of student loans and provide important borrower protections including the opportunity for loan forgiveness. So these are among your best options for funding your education through a loan.

It’s best to exhaust your options for Stafford Loans first before considering alternatives including PLUS Loans or private student loans.