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Stafford Loans
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By Shaileja Mammen
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Students depend on loans to bridge the gap between the amount students and families can reasonably afford to pay for education and the costs of attendance. Student loans have low interest rates, and repaying them is convenient with the variety of available deferment, forbearance, and cancellation options.
What are the eligibility conditions for Stafford loans?
Undergraduates, graduates, and professional degree students are eligible for Stafford loans only if they are enrolled as at least half-time students.
Who provides Stafford loans?
Stafford loans are available from two sources. The U.S. Department of Education provides Stafford loans directly to students through the William D. Ford Federal Direct Loan Program, and private lenders work with the Federal Family Education Loan (FFEL) Program.
Federal Direct Student Loan Program
The U.S. government provides loans directly to students. The loans are administered by the schools participating in the program. The loans are repaid to the U.S. government.
Federal Family Education Loan Program
Under this program, private lenders provide loans that are guaranteed against default by the federal government. The private lenders include banks, credit unions, and savings and loan associations.
Stafford loans are of two types, subsidized Stafford loans that are available to those who demonstrate financial need and unsubsidized Stafford loans, for which all students are eligible.
What is the maximum amount of Stafford loans that can be awarded?
The maximum you can borrow in a year depends on your dependency status and what year you are in school. Refer to Table 1 for a breakdown of how much you can borrow.
Table 1 Maximum Amounts of Allowed Borrowing
| Year in School |
Dependent Undergraduate Student |
Independent Undergraduate Student |
Graduate and Professional Degree Student |
| First Year |
$3,500 |
$7,500—No more than $3,500 of this amount may be in subsidized loans. |
$20,500—No more than $8,500 of this amount may be in subsidized loans. |
| Second Year |
$4,500 |
$8,500—No more than $4,500 if this amount may be in subsidized loans. |
| Third and Beyond (Each Year) |
$5,500 |
$10,500—No more than $5,500 of this amount may be in subsidized loans. |
| Maximum total debt from Stafford loans when you graduate |
$23,000 |
$46,000—No more than $23,000 of this amount may be in subsidized loans. |
$138,500—No more than $65,500 of this amount may be in subsidized loans. The graduated debt limit includes Stafford loans received for undergraduate study. |
What other fees are charged on these loans?
An origination fee of up to three percent of the loan amount is deducted proportionately from each loan disbursement.
How is the loan disbursed?
The school will disburse the loan in at least two installments, and none of them will be greater than half the amount of the total loan amount.
What is the rate of interest charged on Stafford loans?
Below are the new interest rates effective July 1, 2007 to June 30, 2008 for Stafford and PLUS loans in the Direct Loan and Federal Family Education Loan (FFEL) Programs for loans disbursed between July 1, 1998 and June 30, 2006.
Table 2 Interest Rates
| Loan Type |
Status |
Program |
| Direct Loans |
FFEL |
| Now |
After July 1 |
Now |
After July 1 |
| Subsidized Stafford Loans |
Repayment or Forbearance |
7.14 |
7.22 |
7.14 |
7.22 |
| In-school, Grace, or Deferment |
6.54 |
6.62 |
6.54 |
6.62 |
| Unsubsidized Stafford Loans |
Repayment or Forbearance |
7.14 |
7.22 |
7.14 |
7.22 |
| In-school, Grace, or Deferment |
6.54 |
6.62 |
6.54 |
6.62 |
| PLUS Loans |
All |
7.94 |
8.02 |
7.94 |
8.02 |
What are the differences in the repayment options available for subsidized and unsubsidized loans?
A comparison of the repayment options for subsidized and unsubsidized loans is shown in the table below.
Table 3 Comparison of Repayment Options
| Type of Loan |
Grace Period |
Repayment to be made |
| Subsidized Stafford Loans (Direct & FFEL) |
No interest is charged during the 6-month grace period. No principal needs to be paid. |
U.S.Government through Direct Loan Servicing Center |
| Unsubsidized Stafford Loans (Direct & FFEL) |
Interest will be charged during the 6-month grace period which can be paid later. It will be capitalized. No principal needs to be paid. |
The private lender that made the loan |
Is it possible to defer payments on Stafford loans?
Yes, it is possible to defer payments on Stafford loans under certain conditions like at least half-time study at a post-secondary school or study in an approved graduate fellowship program or approved rehabilitation-training program for the disabled. If the borrower is facing economic hardship, deferment up to 3 years is available.
Can payments be temporarily reduced or postponed?
Yes, payments on student loans can be temporarily reduced or postponed with consent from the lender or the loan-servicing agency. This forbearance can be granted for a period of 12 months at a time for a maximum of 3 years. A written agreement is necessary for forbearance.
Mandatory forbearance is granted when the borrower is in dental or medical residency or internship, the loan repayment is 20% or more of the borrower's monthly income, or repayments are being made by the Department of Defense. Interest that accrues during the period of forbearance must be paid.
Can Stafford loans be cancelled?
Stafford loans can be cancelled or forgiven in various situations. Default on repayment is not a precondition for cancellation or forgiveness of Stafford loans.
With the death or permanent disability of a student, loans are cancelled. The other situations in which loans are forgiven include when the borrower is a full-time teacher at a designated elementary or secondary school serving students from low-income families.
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Article Title : Stafford Loans |
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