Stafford Loans
Stafford Loans: A majority of the student aid given out by the U.S. Department of Education is in the form of Stafford Loans. There are two types of Stafford Loans: Direct and Federal Family Education Loans (FFEL). These two loans are very similar, although the application, source of funds, and the repayment plans differ substantially. The funds for Direct Loans come from the U.S. government, and the funds for FFEL Loans come from banks, credit unions, or other lenders that are part of the FFEL Program.
Stafford Loans (both Direct and FFEL) can be granted in the form of either subsidized or unsubsidized loans. Subsidized loans are given to students who demonstrate financial need and do not accrue interest before the repayment period begins. Unsubsidized loans are awarded to students regardless of financial need and accumulate interest before beginning of the repayment period. The interest will be added to the principal and interest will be charged on this new, higher amount.
In order to qualify for Direct or FFEL Stafford Loans, students need to be enrolled in an eligible program on at least a half-time basis. Dependent students can borrow the following amounts:
- Up to $2,625 for first-year students enrolled in a program that lasts an entire academic year
- Up to $3,500 for students who have successfully completed their first year of study
- Up to $5,500 for students who've completed 2 years of study
Independent students are allowed to borrow the following amounts:
- Up to $6,625 for first-year students enrolled in a program that lasts an entire academic year
- Up to $7,500 for students who have successfully completed their first year of study
- Up to $10,500 for students who've completed 2 years of study
Students receive payment for Direct Stafford Loans through their schools. For FFEL Stafford Loans, the lender transfers the funds to the students' schools. Most loans are paid to students in 2 installments over the course of the academic year. Students are required to use the money first to cover tuition, fees, room, and board. Any remaining money may be delivered by check or cash. Students always have the option of canceling their loan within 14 days of the date the funds were received.
The interest rate for Stafford Loans may change every year during the repayment period. However, they are not allowed to go above 8.25%. Students are also charged a fee of 4% of the loan. If you stop making payments, late fees and collection fees may be applied. Borrowers can qualify for deferment (postponement of repayment without accruing interest) or forbearance (postponement of repayment with accruing interest) if they need to delay their loan payments. Stafford Loans may also be cancelled if the borrower dies or becomes permanently disabled, if they become a full-time teacher or child-care provider, if they go bankrupt, if their school closes, as well as other circumstances.
