Student Loans - Federal Stafford Loan

Federal Stafford Loan

Overview

The U.S. Department of Education administers the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. Both the FFEL and Direct Loan programs consist of what are generally known as Stafford Loans (for students) and PLUS Loans (for parents).

Schools participate in either the FFEL or Direct Loan program but sometimes participate in both. Under the Direct Loan Program, the funds for your loan come directly from the federal government. Funds for your FFEL will come from a bank or other lender that participates in the program. You can research your options using our LoanFinder. Eligibility rules and loan amounts are identical under both programs, but repayment plans differ somewhat.

In order to apply for a Stafford loan, you must first complete the Free Application for Federal Student Aid (FAFSA). The FAFSA is used to apply for all types of federal student aid and serves as your application for the Stafford loan program as well.

Borrowing

If your school is a Direct Loan school, your school will provide all the necessary instructions for you to obtain your Stafford loan. If your school is a "FFEL School", you will need to choose a lender for your loan. eStudentLoan's LoanFinder is designed to help you compare your options so you can find the lender and loan program that's right for you. Note: Your school may present to you a list of lenders from which to choose your loan. However, you are free to choose any lender that participates in the FFEL program -- including the lenders you find on eStudnetLoan. This "Preferred Lender List" is simply provided to you as a convenience as hundreds of lenders offer Stafford loans. Be sure to research your options. While the terms and rates are set by the federal government, lenders offer an array of incentives that can reduce the cost of borrowing. Use the LoanFinder to compare your options before you borrow.

Once you have chosen a lender, you will also need to sign a promissory note. The promissory note is your legally binding agreement to repay your loan. Your school will also conduct an "Entrance Interview" that you must complete in order to receive your loan proceeds. The Entrance Interview will be conducted in-person or online and is an informational session to ensure you understand your rights and responsibilities connected with borrowing a federal loan. The session will liely last no more than 20-30 minutes.

Your school will determine your eligibility for either a Subsidized and/or Unsubsidized Stafford loan. "Subsidized" means the government pays the interest on your loan while you are in school. "Unsubsidized" means you are responsible for either making interest-only payments on your loan while you are in school or deferring the interest (allowing the interest to be added to your loan principal) while you are in school.

Loan Limits

Stafford loans have fixed maximums based on your year in school. If you're a dependent undergraduate student, each year you can borrow up to (for the 2007-08 academic year):

$3,500 if you're a first-year student enrolled in a program of study that is at least a full academic year.
$4,500 if you've completed your first year of study and the remainder of your program is at least a full academic year.
$5,500 if you've completed two years of study and the remainder of your program is at least a full academic year.

If you're an independent undergraduate student or a dependent student whose parents have applied for but were unable to get a PLUS Loan (a parent loan), each year you can borrow up to:

$7,500 if you're a first-year student enrolled in a program of study that is at least a full academic year (no more than $3,500 of this amount may be in subsidized loans).
$8,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (no more than $4,500 of this amount may be in subsidized loans).
$10,500 if you've completed two years of study and the remainder of your program is at least a full academic year (no more than $5,500 of this amount may be in subsidized loans). This amount remains unchanged for both academic years.

You can not borrow more than your cost of attendance (determined by your school) minus other financial aid including other loans. As a result, the amount you may borrow could be less than the maximums listed above.

Stafford loans have fixed maximums based on your year in school. If you're a dependent undergraduate student, each year you can borrow up to:

$2,625 (for the 2006-07 academic year) and $3,500 (for the 2007-08 academic year) if you're a first-year student enrolled in a program of study that is at least a full academic year
$3,500 (for the 2006-07 academic year) and $4,500 (for the 2007-08 academic year) if you've completed your first year of study and the remainder of your program is at least a full academic year.
$5,500 if you've completed two years of study and the remainder of your program is at least a full academic year.

If you're an independent undergraduate student or a dependent student whose parents have applied for but were unable to get a PLUS Loan (a parent loan), each year you can borrow up to:

$7,500 if you're a first-year student enrolled in a program of study that is at least a full academic year (no more than $3,500 of this amount may be in subsidized loans).
$8,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (no more than $4,500 of this amount may be in subsidized loans).
$10,500 if you've completed two years of study and the remainder of your program is at least a full academic year (no more than $5,500 of this amount may be in subsidized loans).

Interest Rate

The interest rate on Stafford loans disbursed after July 1, 2006 is fixed at 6.8%. You may be charged fees up to 2.5%. However, some lenders and guaranty agencies pay this fee on your behalf. Still, you need to pay careful attention to ensure your lender offers this benefit.

Repayment

You will not have to begin repayment of your Stafford loan until 6 months after you graduate, leave school or drop below half-time attendance.

There are four different repayment plans avaialable:

Standard - even monthly payments over a ten year period.
Extended - even monthly payment over a 12-30 year period depending upon the total amount you borrow.
Graduated - payments start out low, then increase in stages. You can generally take from 12 to 30 years to repay your loan. The length of your repayment period will depend on the total amount you owe when your loan goes into repayment.
Income Sensitive - monthly payment is based on your yearly income and your loan amount. As your income increases or decreases, so do your payments. Each payment must at least equal the interest accrued on the loan between scheduled payments, and no scheduled payment amount can be more than three times greater than any other scheduled payment amount. You may take from 12 to 30 years to repay your loan depending on the total amount you have borrowed.

Remember, borrow only what you need and compare your options to make sure you get the loan that's right for you.