Funding your Education with Federal Financial Aid: Federal Stafford Loans
by Brooke Heath
If the rising cost of college tuition has you scratching your head about how to pay for your education, you may want to ask the government-for a loan, that is. Federal government loans are a great source of funding for your schooling. One of the most commonly borrowed federal loans, the Stafford loan, is a very affordable loan as it has a low interest rate, as well as great benefits.
The Benefits of a Federal Stafford Loan
Like other federal student loans, Stafford loans are guaranteed by the federal government. These loans feature in-school deferment and grace periods, which allow students to postpone making payments on their loan until they are out of school or drop below half- time enrollment status. The grace period also gives borrowers an additional six months after they are out of school to put off making payments. This allows the borrower time to get established financially before entering the repayment period.
As with all federal loans, Stafford loans offer deferment and forbearance options. With these options, borrowers may temporarily suspend their monthly payments if they fall upon financial hardships or other hardships that may hinder them from being able to pay on their loan.
Also, federal loans-including Stafford loans-are not credit-based, which means that there are not any credit checks used to determine eligibility for the loans. This is a great option for potential borrowers who have yet to establish a credit history or have a less-than-perfect credit rating. Because federal Stafford loans are not based on credit, there is no need to find a cosigner to sign with you.
Another feature of federal loans is that there are no prepayment penalties. This gives borrowers an opportunity to save on interest costs by allowing them to pay ahead on the loan, or pay off the loan early, without penalty. Also, students may also take advantage of this benefit by making small payments while they are still in school without incurring fees or penalties.
Perhaps the one biggest perk of taking out a Stafford loan is the fact that for loans disbursed between July 1, 2006 and June 30, 2007, there is a low, fixed interest rate of 6.8%. Not only is the low interest rate a great deal, but because it is fixed, you can rest assured that it will not fluctuate with the other variable rates each year.
Stafford loans are unique in that there are two variations of the loan: subsidized and unsubsidized. Subsidized Stafford loans are beneficial in that while the borrower is in school, in their grace period or in deferment, the government will pay the interest that accrues on the loan. In order to qualify for a subsidized loan, the prospective borrower must demonstrate financial need.
With unsubsidized Stafford loans, the borrower is 100% responsible for the interest that accumulates on his or her loan from the time that the loan is disbursed until it is paid off. However, as mentioned previously, there is no need to begin making payments until the borrower's grace period has ended. A bonus with unsubsidized Stafford loans is that unlike the subsidized version, it is not based on need at all. This allows students who are unable to demonstrate a financial need to still have an option to pay for their schooling.
The amount that a student may borrow is contingent upon the year of school that he or she is in. The loan limits are as follows:
If you are a dependent undergraduate student, each year you can borrow up to:
$3,500 for the 2007-08 academic year (if you are a first-year student enrolled in a program of study that is at least a full academic year)
$4,500 for the 2007-08 academic year (if you have completed your first year of study and the remainder of your program is at least a full academic year)
$5,500 if you have completed two years of study and the remainder of your program is at least a full academic year. This amount remains unchanged for both academic years.
If you are 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 for the 2007-08 academic year [if you are 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 for the 2007-08 academic year [if you have 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 have 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.
Many eligible students combine both subsidized and unsubsidized loans together to receive the largest amount of funding.
How to Apply for Stafford Loans
The first step in applying for a federal Stafford loan is to complete a Free Application for Federal Student Aid, better known as the FAFSA form. This application is necessary to apply for any federal student loans, as well as both unsubsidized and subsidized Stafford loans. The FAFSA will provide the government and colleges with information that will help them to determine your eligibility for subsidized loans, as well as other financial aid.
Consolidate All of Your Loans and Save!
Another advantage to borrowing Stafford loans is that they can be consolidated with any other kind of federal loan. Consolidating your student loans will allow you to have just one loan, with one low monthly payment. This will save you time as well as money! By consolidating with an experienced lending company, such as EdFed, you can save thousands of dollars over the life of your student loans!
EdFed: Helping Students
As a leader in the consolidation industry, EdFed is dedicated to helping students manage their student loans and reach their educational goals. EdFed offers incredible benefits with our federal student loan consolidation, as well as customer service that is second to none!
For more information on Stafford and other federal loans, check out more of EdFed's informative articles or visit these websites:
Article Title : Funding your Education with Federal Financial Aid: Federal Stafford Loans
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Education is one of the most basic right of any human, but with the increase in prices and the costs involved in education this has made these rights turn into a privilege which very few can enjoy. Any normal person today in the whole of United States has to take an education loan at one point of time to pay for their education fees.
If your monthly debt burden for your federal student loans collectively equals or exceeds 20% of your total monthly gross income, you likely will be eligible for forbearance on your consolidation loan.