The Stafford Loan currently provides more aid dollars than any other individual government educational aid program. The average student receives several thousand dollars each school year. Stafford Loans are available through many different lending institutions and are fully insured by both state and federal governments.
TIP…Did you know you may take a tax deduction for educational expenses, such as tuition, if schooling is necessary for you to keep your current job or if it is required in order to retain your current rate of pay?
- Stafford Loans (subsidized and unsubsidized) must be repaid
- Lenders: Banks, credit unions, savings and loans, loan associations, schools, and, through the Direct Loan program, the U.S. Department of Education
- Insured by lender and re-insured by the state and/or federal government
- Interest rates change regularly.
- Deadlines: Apply as soon after January 1 as possible
How Do I Determine My Eligibility?
- You must be enrolled at least half-time in a participating school
- You must be a U.S. citizen or eligible non-citizen
- Unsubsidized Stafford Loans are issued regardless of income; students are able to borrow money whether they have financial need or not
- Students studying overseas are also eligible as long as they are earning credit from their state institution
- You must not have previously defaulted on any other student aid loans
- Junior and senior undergraduates must not have more than $57,500 for undergraduates—No more than $23,000 of this amount may be in subsidized loans, and graduate students must not have more than $138,500 outstanding and no more than $65,500 of this amount may be in subsidized loans. The graduate aggregate limit includes all federal loans received for undergraduate study.
How Much Can I Get?
The following figures represent the maximum amount of money that anyone can receive annually through the subsidized Stafford Loan program, if no other aid is being given (amounts change periodically):
- First year undergraduate students: $3,500
- Second year undergraduate students: $4,500
- Third and fourth year undergraduate students and beyond: $5,500
Undergraduate students who won’t be attending school for a full academic year are still eligible for Stafford Loans.
The amount all students receive cannot exceed the total cost of their education less the amount of any other financial aid awarded. For example, if your total college cost for one year is $6,000 and you have received other aid such as a Pell Grant and Federal Work-Study employment that amounts to $3,500 in benefits, then the maximum amount you can borrow from the Stafford Loan program is $2,500.
TIP…The Department of Defense may repay a portion of your Stafford Loan as an incentive for you to enlist. Contact a local recruiting officer for more information.
To receive a Stafford Loan, most applicants need to fill out what is called the Free Application for Federal Student Aid (FAFSA). (See Our FASFA Workshop pages.) There may also be other forms individual schools require, such as the new Financial Aid Profile application. Financial aid advisors at the school you are attending or planning on attending can help you determine what forms to fill out.
TIP…By law, you must be notified if the original lender sells your loan to another organization. Both companies should notify you of the sale and provide you with information about the new organization carrying your loan.
After your financial aid package is complete and award amounts are determined, you will either receive a Stafford Loan application in the mail from your financial aid office or you will need to request one.
Complete the form and make sure that the school you’re attending has filled out its section of the form, certifying your registration, the amount of award money you will be receiving, and the total cost of your tuition and expenses. Most schools will automatically check your eligibility for a Pell Grant before announcing the appropriate Stafford Loan amount. If you do receive a Pell Grant, the amount of your Stafford Loan may be less. In some cases, your college or university can certify a loan for less money than you’re eligible to receive, or they can refuse to certify your application altogether. If this does happen, the school must present you with written documentation for its actions. The school’s decision is final and cannot be appealed to the U.S. Department of Education.
Once the application for your Stafford Loan has been approved by the lender, the funds will automatically be transferred back to your school for disbursement. Before receiving your loan money, you must sign a promissory note agreeing to pay back the entire amount you have borrowed. Typically, there is a small loan fee that is taken out of the loan before you receive the money. The disbursement of loan money is either credited to your account by the school, or paid directly to you, or both. The number of payments you receive is based on your academic calendar. If you attend a school on the quarter system, you will usually be paid three times a year at the start of each quarter (not including summer quarter). Schools that operate on a semester system pay their students twice a year, at the beginning of fall and spring terms. With the Stafford Loan, disbursements may also be on a weekly or monthly installment plan. Payments may never be more than one-half the amount of your loan. Students who are studying overseas can arrange to receive their funds directly.
TIP…Borrowers always have the option of loan consolidation when the time comes around to start paying back loans. A consolidation loan program enables you to combine several educational loans into one new bank loan from a single source and take more time to repay the debt. If interest rates are lower when you consolidate than they were when you originally took out the loans, this can be not only a convenience but a financial advantage to you.
Undergraduate students in their first year of study who are also first-time Stafford Loan borrowers must wait thirty days after the start of school to receive their first loan installment. This also applies to borrowers attending an institution with a default rate over 25 percent. Contact your financial aid office for more information. Because of this waiting period, it is very important that you make arrangements to have your tuition and expenses covered until you receive your installment. As noted earlier, many schools will grant emergency loans free of interest to students who have not yet received financial aid.
The interest rate on the Stafford Loan varies. The rates cannot exceed 9 percent and you will be notified by the organization carrying your loan whenever the rate changes. If you have a Stafford Loan and have received federally funded loan money, contact your lender for the current interest rate.
Students who have Stafford Loans based on need are not responsible for making interest payments until after graduation. These types of loans are subsidized, meaning that the federal government supports or pays the interest on these loans while the borrower is in school. Typically, non-need, or unsubsidized loans will accrue interest while the student is in school and during deferment periods. Borrowers with unsubsidized loans may have the option of letting interest accumulate until they are out of school or until deferment ends.
Your payback plan usually goes into effect six months after you graduate, leave school, or reduce your enrollment to less than half-time. If you have a subsidized Stafford Loan, you are not responsible for interest payments during this six-month period. If your loan is unsubsidized, interest will continue to accumulate.
If your status changes, you must notify the organization carrying your loan. Often this organization will be different from the original lender, because many lenders sell the loans they carry to other companies who handle the collection process.
TIP…Almost all lending institutions are willing to make alternative payment plans if you are having trouble meeting your repayment schedule. If you foresee financial difficulty, contact the agency carrying your loan immediately to explain your situation. Do not just skip a payment without explanation.
The organization carrying your loan should inform you of the date repayment is to begin. However, if this deadline has passed and the company has not contacted you, it is your responsibility to either notify the organization or begin repayment on time. Stafford payments are typically made over a five- to ten-year period, depending on the size of the loan.
There are four repayment plans available to students who have Direct Stafford Loans:
- The Standard Repayment Plan
- The Extended Repayment Plan
- The Graduated Repayment Plan
- The Income-Contingent Repayment Plan.
With the Standard plan, the student will have monthly payments of at least $50 and can repay the loan for a period of up to 10 years, depending on how much has been borrowed. The Extended plan (which is not available with FFELP Stafford Loans) is a good option if you have a bigger loan that you think will be difficult to pay over 10 years. The Extended plan allows you to pay back the money over a period of up to 30 years. The monthly payments are lower, but the added interest will mean you’ll end up paying more in the end. The Graduated plan is an option where payments begin as low as 50 percent that of the Standard plan, plus you can repay the loan over an extended period of up to 30 years. The monthly payments for the Graduated plan increase about every two years, and by the end of the repayment cycle you will be making monthly payments of up to 150 percent that of the Standard loan. With the Income-Contingent plan, just as the name implies, payments are based on your income, as well as your family situation. This very flexible plan takes into account your ability to pay, and if by the end of 25 years there is still a balance due, the unpaid amount will be forgiven. However, the federal government could hold you responsible for paying the taxes on the amount that wasn’t repaid.
Deferring a Stafford Loan
Deferring or postponing Stafford Loan payments is possible under specific conditions, as long as the loan is not in default. You must contact the agency carrying your loan to apply for deferment. Be prepared to present documentation to support your request. Your eligibility for deferment depends on the date your loan was first disbursed, the current status of your loan, and the following criteria. Deferment is granted for:
- Graduate or fellowship study
- Half- or full-time enrollment in a post- secondary institution
- Involvement in rehabilitation programs for the physically challenged
Up to three years deferment is granted for:
- Economic difficulties
- Inability to find full-time employment
TIP…It is not necessary to have an account at a particular bank to secure a Stafford Loan, but start by checking with your own bank or the bank your parents use.
Any student who is willing to make loan payments but is unable to do so, and who is not eligible for a deferment, may apply for forbearance. Forbearance is a specified amount of time during which you are not required to make any payments on the principal balance or interest of your loan. You must contact the organization that carries your loan and inquire about procedures to apply for forbearance. Most companies require some type of written statement about your present financial situation.
The repayment of a Stafford Loan may be canceled or forgiven, but only under the following specific conditions:
- Bankruptcy (in some cases)
- Complete and permanent disability of the borrower
- Death of the borrower
- Going back to school for a teaching certificate
- Teaching full-time in an area serving low-income students
- Teaching full-time in an area with a shortage of teachers
- Volunteering for the Peace Corps, VISTA, or other nonprofit organizations
If you qualify for any one of these requirements and would like to apply for cancellation, contact the organization carrying your loan. Some of these conditions are dependent on the amount of funds available to cover such programs, so check with your loan company for availability.
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