An Explanation of Federal Student Loans
Basic Information about U.S. Federal Stafford Loan Program
Nov 9, 2009
After scholarships and other gift aid, college students are finding that more and more money for tuition payments must come from outside sources. One of the many options available for students is the United States Department of Education's Federal Stafford Loan program.
Stafford Loan Applications
Students can apply for a Stafford Loan by completing the Free Application for Federal Student Aid, or the FAFSA. Based on the data from household income and other expenses, a student's school will determine eligibility for federal student loans and a few other campus-determined federal loans, such as a Parent PLUS Loan or Perkins Loan.
Subsidized Stafford Loans
A student can receive one of two types of Stafford Loans: subsidized and unsubsidized. Most students who receive Stafford Loans will receive a subsidized Stafford Loan. These loans do not accumulate interest while a student is enrolled in college or during the loan's grace period after a student has separated from school for more than six months.
The amount of subsidized loans a student can borrow each year is limited. According to Direct Loans, the servicer of most federal student loans, a first year student can borrow up to $3,500 for first year's expenses if the loan is disbursed after July 1, 2008. Subsidized loans are capped at $4,500 for a student's second year and $5,500 for subsequent years, as long as a student will be enrolled for an entire academic year. Borrowing limits for independent undergraduate students and graduate/professional students are higher.
In total, an individual can borrow up to $65,500 in subsidized student loans during a lifetime. After an individual has borrowed that amount of funds, they are no longer eligible for subsidized loans.
Unsubsidized Stafford Loans
Unsubsidized Stafford Loans accumulate interest from the time the loan is disbursed until it is payed off.
Just like subsidized loans, unsubsidized Stafford Loans have borrowing caps for each year of attendance. Students may borrow up to $2,000 per year as long as they will be enrolled for the entire academic year. Students whose parents are unable to receive a Federal Parent PLUS Loan may borrow as much as $6,000 for the first two years and $7,000 every year after that. Limits for independent undergraduates and professional/graduate students also vary.
In total, those borrowing funds can borrow up to $73,000 in unsubsidized loans, for a total Stafford Loan limit of $138,500 for most borrowers. Those who are studying certain health fields may borrow more.
Stafford Loan Interest and Repayment
Interest rates on loans disbursed on or after July 1, 2006, have a fixed interest rate of 6.8%, while those disbursed on or after July 1, 2009, have a fixed interest rate of 5.6%.
Borrowers who make a specified number of payments on time may be eligible for rebates and interest rate reductions. Terms of these benefits are available when a student completes the federal student loan exit counseling, where they will also have the opportunity to consolidate federal student loans.
Stafford Loans enter repayment six months after a student has withdrawn or graduated from school. If a student is unable to pay monthly loan payments, which at a minimum are $50 a month, the student may modify the type of repayment plan or repayment schedule to reduce monthly payments, or put the loans into forbearance.
Those who are returning to school are able to defer payment while they are enrolled full time and for six months after separation from school.
The Federal Stafford Loan program helps to provide assistance to individuals who need extra help paying for the rising costs of higher education. In addition, federal college student loans can help those continue who wish to continue their studies following graduation for a lifetime.
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