Federal Stafford Loans

Written by Michael Bennet

Federal Stafford Loans used to be offered as either part of the FFEL, of Federal Family Education Loan Program, or as part of the William D. Ford Federal Direct Loan Program.

Because of the elimination of the FFEL Program as a result of the Health Care and Education Reconciliation Act, beginning July 1, 2010 Stafford Loans will no longer be offered as part of the Federal Family Education Loan Program.

Going forward Stafford Loans will now strictly be offered via the Federal Direct Loan Program, and you will therefore no longer be getting the proceeds of your loan from a private bank, or other financial institution, and will instead be getting your money directly from the federal government.

That being said, Federal Stafford Loans can still provide you with a large amount of money to put towards your education-related expenses, and almost every other aspect of these types of federal student loans has remained the same even after the passing of the new reform bill.

Remember that there are two kinds of Stafford Loans, there is the Subsidized Stafford Loan, which doesn’t require you to pay any interest while you are still in school, and there is the Unsubsidized Stafford Loan, which does accrue interest while you are still in school.

Subsidized and Unsubsidized Stafford Loan Amounts

Subsidized Stafford Loans are a bit more difficult to get due to the fact that they are heavily based upon financial need. You therefore may not be able to get a Subsidized Stafford Loan just because you have submitted a FAFSA, although this is highly unlikely if you need additional aid and you have already been given a Pell Grant.

You can take out both a Subsidized, and an Unsubsidized Stafford Loan during the same school year. The loan amounts you are able to receive will be capped off at certain levels in accordance with each loan type, your grade level in school, and your dependency status. The following has been taken from studentaid.ed.gov, and appropriately describes the amounts you may be eligible to receive in Stafford Loans for a given award period.

Taken from studentaid.ed.gov:

“If you’re a dependent undergraduate student (excluding students whose parents cannot borrow PLUS loans) each year you can borrow up to:

  • $5,500 (for loans first disbursed on or after July 1, 2008) 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 can be in subsidized loans.
  • $6,500 (for loans first disbursed on or after July 1, 2008) 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 can be in subsidized loans.
  • $7,500 (for loans first disbursed on or after July 1, 2008) 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 can be in subsidized loans.

If you’re an independent undergraduate student (and 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:

  • $9,500 (for loans first disbursed on or after July 1, 2008) 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.
  • $10,500 (for loans first disbursed on or after July 1, 2008) 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.
  • $12,500 (for loans first disbursed on or after July 1, 2008) 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.

If you’re a graduate or professional degree student, each year you can borrow up to:

  • $20,500. No more than $8,500 of this amount may be in subsidized loans.”

Interest Rates

The interest rate you will have to pay for your Stafford Loan will depend on whether you get a Subsidized, or Unsubsidized Stafford Loan.

All Unsubsidized Stafford Loans that are made after July 1, 2006 are fixed at an interest rate of 6.8 percent.

All Subsidized Stafford Loans that are made after July 1, 2010 are fixed at a 4.5 interest rate.

Summary

Remember that you can acquire both Subsidized and Unsubsidized Stafford Loans for each year you are participating as an undergraduate student in the appropriate degree-oriented program. Stafford Loans can be used in conjunction with any aid you receive by way of the Pell Grant, and depending on your overall level of need, can provide you with an enormous amount of funding for your college education.

You will be notified of your approval status pretty much the same way you will be notified of your status in regard to the Pell Grant, via an award letter from the college you are planning to attend. Make sure that you accept or decline the aid that you are given by the appropriate deadlines, as most federal aid needs to be officially accepted before it will be disbursed for the following school year.