About Stafford Loans
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 charged to the new, higher amount.
Stafford Loan Interest Rates
For the 2012-2013 academic year, the interest rate for subsidized Stafford loans is fixed at 3.4%, while unsubsidized Stafford loans have a fixed interest rate of 6.8%.
Stafford Loan Borrowing Limits
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.
Stafford Loan Eligibility Requirements
To be eligible for a Stafford loan and other types of federal aid, a student must:
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.
Q:I want to apply for a Direct Stafford Loan but I might not be able to prove my financial need. What should I do?
A:There are two different types of direct Stafford Loans: subsidized and unsubsidized. The subsidized Stafford loans are need based, whereas the unsubsidized Stafford loans do not have any such restrictions. Therefore, if you cannot demonstrate your financial need or do not have any, you can apply for and will receive an unsubsidized direct Stafford loan. Unsubsidized Stafford loans can be acquired by graduate as well as undergraduate students. Students can pay the accumulated cost of loan after graduation or alongside acquiring education. The interest rate for the unsubsidized Stafford loans is fixed at 6.8%.
Q:What are the Stafford Loans limits on borrowing?
A:Stafford Loan limits on borrowing are determined by various factors, such as the applicant's level of education, dependency status, and the year of enrollment in the degree program. Overall, the Stafford loan limits are up to $20,500 per year - but that is for graduate students. Dependent undergraduate students can only borrow between $5,500 and $7,500 per year.
Q:What are the eligibility criteria to apply for federal Stafford loan?
A:To apply for a federal Stafford loan, the applicant needs to be 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. To be considered for subsidized Stafford loans, students must display financial need and be enrolled in an institute at least as a part time student.
Q:What is the difference between subsidized and unsubsidized Stafford student loans?
A: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.
Q:What are subsidized Stafford loans?
A: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.
Q:What are unsubsidized Stafford loans?
A: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 unsubsidized Stafford loans is 6.8%, 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.