A Stafford Loan is a federal student loan that is offered by the Department of Education to undergraduate and graduate students. The objective of Stafford Loans is to provide students with financial aid to help pay for the cost of their education, including tuition, fees, books, study materials, and living expenses. They complement personal and family resources and other financial aid, such as scholarships, grants, and work-study programs.
Types of Stafford Loans
There are two types of Stafford Loans available for undergraduate and graduate students: subsidized Stafford Loans and unsubsidized Stafford Loans. Subsidized Stafford loans are awarded on the basis of financial need, and the government covers the interest that accrues on the loan while the student is in school. Unsubsidized Stafford loans are not need-based, meaning any student can receive one, regardless of financial need. As they are unsubsidized, though, the student is responsible for any interest that accrues while in school. Students can choose to pay the interest while they are in school, but if they don’t, then the total interest accrued is added to the principal amount of their unsubsidized Stafford loan. This will increase the total amount that needs to be repaid because the interest will be calculated on the new, higher amount.
For the 2014-2015 academic year, the interest rate for subsidized and unsubsidized Stafford loans is fixed at 4.66%, while graduate unsubsidized Stafford loans have a fixed interest rate of 6.21%.
The amount a student can borrow in Stafford Loans depends on several factors, including the student’s dependency status, year in school, and undergraduate or graduate status. Students should review their financial aid package or ask their school’s financial aid officer to find out how much they are eligible for.
To be eligible for a Stafford loan and other types of federal aid, a student must:
- Demonstrate financial need (for certain loans)
- Have a high school diploma or a General Education Development (GED) certificate
- Be enrolled or accepted for enrollment and working toward a degree or certificate in an eligible program
- Be a U.S. citizen or eligible non-citizen and have a valid Social Security Number
- Register with the Selective Service if you are a male and at least 18 years old
- Maintain satisfactory academic progress once in school
- Certify that you are not in default on a federal student loan
- Certify that you will use federal student aid only for educational purposes
Students must also file a FAFSA (Free Application for Federal Student Aid) so that their school can determine financial need and subsequently the financial aid package a student will receive.
- Elimination of Grace Period Interest Subsidy
For Subsidized Stafford Loans for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014, students will be responsible for the interest that accrues on the loan during the grace period. If a student does not pay the interest accrued, the interest will be capitalized to the principal amount of their loan when the grace period ends.
- Eligibility of Students Without a High School Diploma
After July 1, 2012, students must have either a high school diploma or a recognized equivalent (such as a General Educational Development certificate [GED]) or have been home schooled to be eligible for federal student aid. Students will no longer have the option of becoming eligible for federal student aid by passing an approved test or completing at least six credit hours or 225 clock hours of postsecondary education.
- Elimination of Subsidized Stafford Loans for graduate students
Starting July 1, 2012, graduate students will no longer be eligible for the Subsidized Stafford Loan funds. This will raise the Unsubsidized Stafford Loan limit from $12,000 annually to $20,500.
I want to apply for a Direct Stafford Loan but I might not be able to prove my financial need. What should I do?
What is the difference between subsidized and unsubsidized Stafford student loans?
The difference between the subsidized and the unsubsidized Stafford student loans is simple to understand. The characteristics of both the loans are more or less the same in that they both have relatively low interest rates and a similar borrowing limit. The essential difference is that for subsidized Stafford student loans, the government pays the interest on the loan while the student is in school, while it does not do so for unsubsidized Stafford loans.
What are subsidized Stafford loans?
Subsidized Stafford loans are federal loans offered to graduate and undergraduate students who are facing financial constraints. In order to receive this loan, an applicant must have a low Expected Family Contribution (EFC) as demonstrated on his or her Free Application for Federal Student Aid (FAFSA). Subsidized Stafford loans are loans for which the interest rate is paid by the government for the time the student is enrolled in the degree program; after graduation, the interest rate remains both low and fixed. Students may begin repayment upon graduation, though subsidized Stafford loans also allow students a six month to one year grace period after graduation to find employment and begin repayment on the loan.
What are unsubsidized Stafford loans?
Unsubsidized Stafford loans are federal loans offered to graduate and undergraduate students irrespective of their financial need. Interest accrues on unsubsidized Stafford loans while the student is in school, as opposed to subsidized Stafford loans. Students can borrow up to the entire cost of education less any other federal financial aid or loan received. The interest rate for both unsubsidized and subsidized Stafford loans for undergraduates is 4.66%, which accrues over time if the student chooses not to pay it off while continuing their degree program. Loan repayment schedules are deferred and allow students a grace period to find a job and start paying off the loan.
When do I need to fill out the FAFSA? Is there a deadline?
You should fill out the FAFSA as soon as you can after January 1st of each year. Because the FAFSA asks for tax information from the previous calendar year, you may want to wait until your family has all of the necessary paperwork or has filed their income taxes. You can file the FAFSA before filing your income taxes using estimates, but you will need to go back later and correct any discrepancies.
The only deadline for filling out the FAFSA is June 30th at the end of the school year for which you are filing. In other words, for the 2014-2015 school year, the FAFSA will be available on January 1, 2014. You can file the FAFSA anytime between then and June 30, 2015. However, many states and schools allocate funds on a first-come, first-served basis, and some states have deadlines for filing the FAFSA to be eligible for certain kinds of aid. Please visit the Department of Education’s Student Aid on the Web for more information.
How long does it take for the FAFSA application to be processed?
How long the FAFSA takes to be process depends on how it is submitted – and if it is complete and correct when submitted. If it’s done online with an e-signature, it can take 3-5 days to see its status; if it’s done on paper via mail, it can take 7-10 days. The status will indicate if you completed the application properly or if more information is necessary before the FAFSA is sent to the school). Please visit the Department of Education’s Student Aid website for more information.
Keep in mind that the most common federal student loan – the Stafford Loan – is available regardless of need or income, but you MUST complete the FAFSA to qualify. It is worth the effort to complete the FAFSA.
What makes a person ineligible to receive FAFSA monies?
It is a common misconception that someone can be “ineligible” for financial aid because they make too much money. Everyone qualifies for unsubsidized federal loans, regardless of income.
People who do not qualify for federal aid include those without a high school diploma or GED, who are not U.S. citizens or eligible non-citizens, do not have a SSN, are not registered with the Selective Service (and are male), are not enrolled in an eligible program, or who are in default on a federal loan. Please visit the Department of Education’s Student Aid on the Web for more information.
When do I have to begin repaying a Stafford Loan?
After you graduate, leave school, or drop below half-time, there is a six-month grace period before you have to make a payment on your Stafford Loan(s). During this time, you will receive information about repayment and your first payment due date. You are responsible for repaying your loan(s) on time, even if you don’t receive this information. Payments are usually due monthly.
During the grace period on a subsidized loan, you don’t have to make any payments, but you will be charged interest. If you choose not to pay the interest that accrues during the grace period, the interest will be added (or capitalized) to the principal amount of the loan when the grace period ends. During the grace period on an unsubsidized loan, you don’t have to make any payments, but you will be charged interest. You can choose to pay the interest during the grace period, or, if you defer all payments until after the grace period, the interest on an unsubsidized loan will be capitalized, or added to your principal loan balance, increasing the total amount you owe.