Taking You Through the Stafford Loan Application
Both new and returning college students should be advised that the U.S. Department of Education is no longer issuing the student loans formerly known as Stafford Loans (which ceased as of July 1, 2010). The Federal Family Education Loan Program (FFEL or FFELP), which sponsored Stafford Loans, was terminated in 2010 with the passage of the Health Care and Education Reconciliation Act of 2010. But not to worry, the Federal Direct Loan Program, a creation of the Higher Education Amendments of 1992, continues in full force.
As Federal Student Aid describes, the largest federal loan program is currently the William D. Ford Federal Direct Loan Program, also known for short as the Direct Loan Program. Lending under this program includes the following loans:
- Direct Subsidized Loans
- Direct Unsubsidized Loan
- Direct PLUS Loan
- Direct Consolidation Loan
In addition, for undergraduate and graduate students who demonstrate exceptional financial need, the federal government offers the Perkins Loan. Undergraduate students should note that the Direct PLUS Loan is limited to parent or graduate student applicants. Further, the Direct Consolidation Loan does not come into play until after studies have been completed. The Direct Consolidation Loan provides borrowers with a means to consolidate all of their eligible federal loans into one loan (with one payment).
The first step in applying for a Direct Subsidized or Unsubsidized Loan is to complete the Free Application for Federal Student Aid (FAFSA). Based on financial information reported on the FAFSA, the school will decide which loans a student can borrow. Each school may have a different loan application process, but all student borrowers will be required to sign a Master Promissory Note (MPN).
- The principal amount borrowed
- The interest rate, and how it’s calculated
- Any origination and other fees
- Deferment options
- Loan cancellation provisions
It is important to note that the MPN usually includes the right for the lender to make modifications to the certain terms, including reserving the right to sell the loan to another party (a common enough practice). While the MPN includes many standard terms, known as “boilerplate” language, even if a borrower does not read every word, signing the MPN means that the borrower is bound to each and every term. The MPN is an enforceable legal contract.
The financial aid office at the school will provide guidance on how to complete the MPN, including how to sign this legally binding contract. Schools will often refer students to an online MPN. In order to sign the MPN online, the student borrower must have a FSA ID.
Now that the basics of applying for a Direct Subsidized or Unsubsidized Loan have been laid out, here’s a quick reference overview of the process of completing the MPN:
- Step 1: Enter personal details and school information.
- Step 2: You will need to enter information about references.
- Step 3: Read all the terms and conditions.
- Step 4: Review, electronically sign, and submit.
This process usually takes approximately 30 minutes, and the online tool requires that it be done in one session. Students are advised to start the MPN when they have adequate time to focus on it.