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Educational Loans - Federal Stafford
Stafford Loans are federal student loans made directly available to college and university students and are used to supplement personal and family resources, scholarships, grants, and work-study.
Topics
1. What are Federal Stafford Loans?
Stafford loans are federal educational loans for undergraduate and graduate students. The interest is either subsidized or unsubsidized, and is a fixed rate of 6.8%. Dependent undergraduate students can borrow up to $23,000, independent undergraduates can borrow up to $46,000, and graduate students can borrow up to $138,500, including any undergraduate Stafford loans. Borrowers are charged a 2% origination fee* and a 1% federal default fee (some guarantors waive this fee), which is deducted from the loan before it is disbursed.
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2. Who is eligible?
- You must have submitted a FAFSA.
- For subsidized Stafford loans, you must have financial need as determined by your school.
- You must be a U.S. citizen or national, a U.S. permanent resident, or eligible non-citizen.
- You must be enrolled or plan to enroll at least half time.
- You must be accepted for enrollment or attend a school that participates in the Federal Family Education Loan Program.
- You must not be in default on any education loan or owe a refund on an education grant.
3) How Much Money Can You Get?
Depending on whether you are a dependent or independent (self-supporting) student, you can borrow the following amounts for your education:
for Subsidized & Unsubsidized Stafford Loans
| Borrower's Academic level | Dependent | Independent |
|---|---|---|
| Undergraduate, 1st Year | $2,625 | $6,625 | .
| Undergraduate, 2nd Year | $3,500 | $7,500 |
| Undergraduate, 3rd Year & on | $5,500 | $10,500 |
| Maximum Debt Allowed | $23,000 | $46,000 |
| Graduate or Professional Students | $8,500 | $18,500 |
| Maximum Debt Allowed* | $65,500 | $138,500 |
*Including all undergraduate Stafford Loans.
All the above annual borrowing amounts assume enrollment in a program that is at least one academic year long. If your enrollment period is less than a full academic year, your annual borrowing limits will be smaller. For instance, a first year undergraduate student enrolled in a program that is equal to two thirds of an academic year would have a maximum borrowing limit of $1,750.
After you sign a promissory note, your loan will be sent to your school, either by electronic funds transfer or by check made payable to both you and your school. Most loans are disbursed to you in two or more payments, rather than a lump sum. Because of this, you should plan your personal finances accordingly.
For more information, contact your financial aid administrator or your lender.
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4) What's the Application Process?
You apply any time during the year, but obtaining a loan may take several weeks. There are two basic methods of application -- paper and electronic. Your school will tell you which method it prefers. Each method begins with filing the Free Application for Federal Student Aid (FAFSA).
If a need analysis has already been performed for you by the school, you might arrange a loan in two to four weeks. If no need analysis has been done, it could take several months. Therefore, be sure to:
- Plan ahead and ask your school what application method it prefers, and how long it will take to apply.
- Find out whether you're eligible for a Federal Pell Grant. This is required before your school can process the loan application and disburse loan funds.
- Be sure you understand the loan repayment terms.
The interest rates on federal Stafford and Direct loans depend on when you took out the loan:
- Interest rates for July 1, 2006 to June 30, 2007 are 6.8 percent while the student is enrolled in school and during repayment.
- Interest rates for repayment of loans taken out before July 1, 2006 vary depending on the date of the first disbursement, but cannot exceed 8.25 percent. You are notified as the interest rate changes throughout the life of your loan(s).
The federal government will pay (or subsidize) the interest on the loan for you until the start of the repayment period. In most cases, you must begin repaying the loan six months after you leave school or drop below half-time status. Typically, you have up to 10 years to complete repayment.
The amount of your payment depends on the size of your debt. However, you will pay at least $50 per month in principal and interest. Under certain conditions you may defer (postpone) payments for up to three years. Ask your financial aid administrator, your lender or read your promissory note to obtain information about deferring payment.
Some borrowers can repay their loans based on a "graduated" or "income sensitive" repayment. This option considers your financial situation when determining the monthly payment. For more information, ask your lender or servicer.
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5. Subsidized Stafford loans
Subsidized federal student loans are offered to students with a demonstrated financial need. They generally require student to be from a low income family. For these loans, the federal government makes interest payments while the student is in college.
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6. Unsubsidized Stafford loans
Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. Students can pay the accrued interest while still in college.
7. Need Additional Information?
The Department of Education acts as a lender, providing funds for Stafford loans and PLUS loans in the same amounts as the Stafford and PLUS loans offered through the Federal Family Education Loan Program.
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