Understanding the Stafford Student Loan Program
Overview of Rules and Benefits of Federal Stafford Loans
Direct Stafford loans, which are offered through the William D. Ford Federal Direct Loan (direct loan) program, are the basic building block of most students' financial aid packages. Students using Stafford loans can typically borrow a significant amount of money regardless of their financial need, for both undergraduate and graduate school programs.
The interest rate and terms for Stafford loans can vary depending on whether the loans are subsidized or unsubsidized, but in either scenario, they represent one of the best choices for borrowing to pay college costs.
Stafford loan limits are based on whether a student is considered a dependent and their year in school. The maximum loan amounts are outlined below.
|Freshman (0-29 credit hours)||$5,500 ($3,500 subsidized, $2,000 unsubsidized)||$9,500 ($3,500 subsidized, $6,000 unsubsidized)|
|Sophomore (30-59 credit hours)||$6,500 ($4,500 subsidized, $2,000 unsubsidized)||$10,500 ($4,500 subsidized, $6,000 unsubsidized)|
|Junior/Senior (60+ credit hours)||$7,500 ($5,500 subsidized, $2,000 unsubsidized)||$12,500 ($5,500 subsidized, $7,000 unsubsidized)|
|Graduate/Professional||Not applicable||$20,500 (all unsubsidized)|
Dependent students who were not able to secure a PLUS loan for additional funds can borrow money up to the independent student loan amount. Additionally, there is a lifetime limit on Stafford loans—currently capped at $31,000 for dependent students, $57,500 for independent students, and $138,500 for graduate students.
|Aggregate Maximum Subsidized Loan Limit||Aggregate Maximum Unsubsidized Loan Limit||Total|
Subsidized vs. Unsubsidized
With a subsidized Stafford Loan, the federal government pays the interest on the loan while a student is still in school. In other words, the loan value has nothing added to its original amount until after you graduate. Subsidized loans are available based on financial need.
Students who don't qualify for a subsidized loan can still receive an unsubsidized loan but will accrue interest while they are still in school. However, they do not have to begin repaying the loan until after they graduate, and their six-month grace period has ended.
The amounts of subsidized loans a student can receive are limited to the dependent maximums listed above. For example, the maximum subsidized loan amount for a freshman student would be $3,500. Any additional Stafford loans received, up to the freshman year maximum of $9,500, would be unsubsidized.
Graduate students are not eligible to receive subsidized loans.
Interest Rates and Fees
The Federal Student Aid website maintains and regularly updates information about the current interest rates for federal student loans. It's important to check it occasionally because the rates charged will vary by loan and borrower type. As an example, for loans with disbursement between July 1, 2020, and July 1, 2021, the rate for direct subsidized and unsubsidized undergraduate loans is 2.75%, while the rate for graduate and professional programs is 4.30%.
In addition to the interest paid on a Stafford loan, there is also a loan fee. For loans with a first disbursement date on or after October 1, 2017, and before October 1, 2018, the loan fee is 1.066% of the total loan amount. If on or after October 1, 2018, and before October 1, 2019, the fee is 1.062%. This fee is partially deducted from each disbursement check.
Repayment of all Stafford Loans begins six months after a student either graduates, drops out, or drops below half-time status. During this six-month grace period, interest does not get added onto a subsidized loan but accrues for unsubsidized loan balances. Stafford Loans allow you to choose a repayment plan from the following options:
- Standard: Fixed payments that make sure your loans are paid off within 10 years.
- Graduated: Payments begin lower and then gradually increase with time (generally every two years). Loans are intended to be paid off within 10 years.
- Extended: Payments can be fixed or graduated and intended to be paid off within 25 years.
- Income-Based: Payments will either be 10% or 15% of your discretionary income. However, payments may never be more than someone would have paid on a Standard Repayment Plan. The payment amount will be recalculated each year based on family size and income.
Regardless of whether or not you are applying for a subsidized or unsubsidized Stafford Loan, you must fill out a FAFSA form. Once completed, the FAFSA form is forwarded to your school, who will then inform you of your loan eligibility and lender options. When you accept the loan, you are required to sign a master promissory note before any funds can be disbursed.
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