Federal Stafford Loan
Federal Stafford loan is one of the federal student loans available to most students attending United States colleges or universities. This loan supplements other tuition including funds received from scholarships, grants and personal investment. Stafford loans may be one of the best choices for your needs. They are one of the most commonly used college loan options available.
Who Is Eligible?
Stafford loans are available to most students. There is no consideration of credit scores or academic record when obtaining these loans. However, students must:
- Be U.S. citizens or nationals, permanent residents or an eligible non-citizen
- Have submitted the Free Application for Federal Student Aid (FAFSA)
- Attend a school that participates in the Federal Family Education Loan Program
- Be enrolled at least half-time as an undergraduate or graduate student
Subsidized vs. Unsubsidized Stafford Loans
There are two types of Stafford loans: subsidized and unsubsidized. A subsidized Stafford loan is often the best option for students since it offers a low fixed interest rate of and no payments or interest accumulation on borrowed funds while you are in school. These funds are based on financial need; You can borrow less. Once you reach the cap on how much you can borrow in subsidized funds, you can then utilize unsubsidized loans.
An unsubsidized Stafford loan has a higher interest rate and interest will accrue from the issuance of the funds. You do not have to pay the interest while you are in school, but it begins to accumulate at that time. You can borrow more unsubsidized funds for your education.
Borrowing Limits
There are borrowing limits associated with this federal student loan program. This is broken down based on whether the student is a dependent student (with their parent's aid) or an independent student. For dependent students, the following limits are currently in place:
- During the first year, the annual loan limit is $5500, made up of $3500 subsidized and $2000 unsubsidized.
- During the second year, the annual loan limit increases to $6500, made up of $4500 in subsidized funds and $2000 in unsubsidized funds
- During the third year and after that, the annual loan limit is $7500 comprised of $5500 in subsidized funds and $2000 in unsubsidized funds.
For independent students, the following limits are in place:
- First year students, annual loan limits are $9500 comprised of $3500 in subsidized funds and $6000 in unsubsidized funds
- The second year offers $10,500 in annual loan limits comprised of $4500 in subsidized funds and $6000 in unsubsidized funds.
- Third year students may receive $12,5000 in annual loans, with $5500 subsidized and $7000 in unsubsidized funds
- Graduate level and professional education students may receive as much as $20,500 with $8500 in subsidized funds and $12,000 in unsubsidized funds.
Fee
Stafford loan fees consist of a 3% origination fee and a 1% default fee. However, starting July 1, 2006, the origination fee was set to drop 0.5% every year and will gradually be phased out. Currently, from July 1, 2009 to June 30, 2010, the origination fee is 0.5%. The 1% default fee is mandatory since July 1, 2006. These fees will be deducted from the loan amount.
Loan Disbursement
Funds are disbursed directly to the school you have applied through two times per year. Half of the amount issued is disbursed at the start of each semester. These funds are first used to cover fees such as tuition, room and board and other fees. Any excess funds may be disbursed to you to cover other school related costs or may be held by the school to apply to a later enrollment.
Repayment
Students do not have to begin repayment of the borrowed funds until after the student has graduated or the student’s enrollment is no longer at least half time. After that time, students have a six-month grace period during which no payment is necessary.
Are Stafford Loans Right For You?
Prior to selecting this or any other loan, parents and students should consider scholarships and grants since no repayment is necessary. When free money options are not enough, federal Stafford loans may be a good option. However, they can be costly. Any Stafford loan over $30,000 has a ten-year repayment period during which interest builds. Monthly payments will continue throughout the repayment period until the balance is paid in full. You can repay your debt faster without penalty. You must repay this federal loan; not even bankruptcy can release this responsibility.
For many students, these loans do not provide enough money to cover all tuition and expenses. In these situations, consider Federal Plus loans and private sector loans for education.
Applying for Stafford Loans
To apply for Stafford loans, contact your school financial aid office or visit http://www.fafsa.ed.gov/ to apply online. Federal student loans like the Stafford loans can make paying for school affordable.