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?
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.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.