If you’ve filled out the FAFSA (Free Application for Federal Student Aid), you know that one of your potential sources of aid is in the form of student loans, and specifically, Stafford Loans (also known as Federal Direct Loans). But what exactly is a Stafford Loan, and what do you need to know before you accept one as financial aid for college?
What is a Stafford Loan?
In short, a Stafford Loan is a type of federal aid in the form of a fixed rate installment credit loan that must be repaid. Stafford Loans are distributed under the William D. Ford Federal Direct Loan Program based on financial need. Stafford Loans are used to supplement family resources, as well as scholarships, grants, and work-study programs.
What Stafford Loans Pay For
If you’ve already accounted for your family contribution, scholarships, and grants, and you find yourself still coming up short for tuition payments, housing, or other school-related costs, the Stafford Loan can be used to make up that difference.
Stafford Loans aren’t limited to paying for tuition. Instead, a Stafford Loan can be used to pay for anything that falls into the category of education costs, including room and board and books.
Stafford Loan vs. Federal Direct Loan
In researching Stafford Loans and other student loans, you might find some confusion between the terms “Stafford Loan” and “Direct Loan”. That’s because, in 2018, these two terms usually refer to the same thing. In fact, they’ve meant the same thing since July 1, 2010.
Before July 1, 2010, students could take out Stafford Loans through the FFEL (Federal Family Education Loan) program. The FFEL program allowed private lenders to give out Stafford Loans with government backing against default. (This means that some students are still paying back FFEL Stafford Loans.)
Since July 1, 2010, all Stafford Loans have been distributed by the federal government directly. That’s why they are now often referred to as “Direct Loans” or “Federal Direct Loans”.
Before 2010, Stafford Loans and Federal Direct Loans were often two different things. Since July 1, 2010, Stafford Loans and Federal Direct Loans are one and the same.
Subsidized and Unsubsidized Stafford Loans
Another set of terms you need to know when you’re applying for financial aid regards subsidization. Federal loan subsidization is the process by which the government pays the interest on your loan.
There are two different types of Stafford Loans—subsidized and unsubsidized—and it’s important that you know which type of loan you’re qualified to receive:
Subsidized Stafford Loan
When you receive a subsidized Stafford Loan, the government pays the interest on your loan while you are in school, during specified grace periods (generally the first six months after you leave school), and during deferment periods (postponement of payments). The government may also pay all or a portion of your interest in various income-based repayment plans.
Unsubsidized Stafford Loan
When you receive an unsubsidized Stafford Loan, you are responsible for paying any interest that accrues on the loan, beginning on the date of first disbursement and ending when the loan is fully paid off.
Stafford Loan Limitations
Stafford Loans are a great way to make up the difference when scholarships, grants, and family contributions just don’t cover the whole cost of college. However, these loans do come with certain limitations.
Time Limit on Stafford Loans
If you’re borrowing for the first time after July 1, 2013, your Subsidized Stafford Loans have a time limit. This does not apply to Unsubsidized Loans or Direct PLUS Loans.
In general, you may not continue to receive Direct Subsidized Loans for more than 150% of the official length of your program. For example, if you’re in a four-year bachelor program, you may not receive Subsidized Stafford Loans for more than six years.
Becoming Responsible for Paying Interest
A subsidized loan means that the government is responsible for paying the interest accrued on your loan. However, certain scenarios you might face during college, such as transferring to a shorter program, could transfer this responsibility to you. Make sure you know what it will take to maintain your subsidized loan status.
What is the Interest Rate on Stafford Loans?
Whether you’re responsible for paying the interest on your loan or not, it’s a good idea to know what that interest is. The following are the interest rates for loans first distributed on or after July 1, 2017, and before July 1, 2018 (studentaid.gov):
| Loan Type | 2017-18 Interest Rate | 2016-17 Interest Rate | 2015-16 Interest Rate |
|---|---|---|---|
| Direct Unsubsidized Loans (Undergraduate) | 0.0445 | 0.0376 | 0.0429 |
| Direct Unsubsidized Loans (Graduate) | 0.0600 | 0.0531 | 0.0584 |
How to Apply for a Stafford Loan
You’ve determined that your other sources of financial aid won’t be enough, and you need a student loan to pay for college. What next?
Check Accreditations
Not all schools are accredited for Stafford Loans, so it’s important to check whether the schools you’re considering are. You can use the Database of Accredited Postsecondary Institutions and Programs to quickly check each school on your list. If the school you’re planning to attend isn’t accredited for Stafford Loans, you won’t be able to receive one.
Determine Your Dependency Status
Another important piece of information you need to know going forward with your FAFSA and applying for a Stafford Loan is whether you’re considered a dependent or independent student. Most traditional students (new high school graduates) are considered dependent, while many students over the age of 24 are considered dependent. Your status as independent or dependent can change the amount of money you’re qualified to borrow with a federal loan.
Submit the FAFSA
Once you know how you’ll fill it out—as a dependent or independent student—and you know which schools on your list are accredited for Stafford Loans, it’s time to submit your FAFSA. Make sure you learn all of the FAFSA deadlines for applying. There are both federal and state deadlines you must meet.
Check to See if You Qualify
The FAFSA will allow the schools on your list to determine whether you qualify for a Stafford Loan, but you can plan ahead of time by knowing the criteria for qualification.
Do You Qualify for a Stafford Loan?
Stafford Loans are available to both undergraduate and graduate students and are distributed based on financial need. The amount you receive from your Stafford Loan depends on your year of study, and the amount usually increases with each subsequent year. First-year undergraduate students are eligible to borrow up to $5,500. The interest rate on your Stafford Loan also varies based on when the loan is taken out.
To qualify for either type of Stafford Loan (subsidized or unsubsidized), you must meet the following basic criteria:
- Be a U.S. citizen, U.S. national, or U.S. permanent resident (some exceptions to this rule may apply, so be sure to check with your school’s financial aid office if you don’t meet this criteria)
- Be enrolled at least half-time at a college, university, or school that participates in the Direct Loan Program.
- Be enrolled in a program at your school which leads to a degree or certificate.
Subsidized Stafford Loan Criteria
To qualify for a Subsidized Stafford Loan, you must be an undergraduate and show financial need, in addition to the above criteria.
Unsubsidized Stafford Loan Criteria
Available to both undergraduate and postgraduate students, Unsubsidized Stafford Loans are the most widely available type of federal student loan. You do not need to show financial need to qualify for an Unsubsidized Stafford Loan.
Stafford Loans Take-Home
If you’re an undergraduate, and you can show financial need, a Subsidized Direct Loan should be your first choice when you’re choosing a loan. If you’re a graduate or professional student, or you don’t meet the financial need criteria for a subsidized loan, an Unsubsidized Direct Loan is likely your best loan option.
When you know the ins and outs of Stafford Loans and what it means to receive one, they’re one of the best methods you can choose to pay for college.
