Federal Stafford Loans R-A-F: Requirements, Application, and Follow-Through
Written by Dongmiao Cui   


This article is ideal for all students after grants and scholarships.
 
Stafford Loans are a type of federal student loans available to college and university students. Under administration of the FFEL Program and the Direct Loan Program, Stafford Loans take funds directly from the federal government. The loans are characterized by their broad eligibility, low interest rates and no payments during school years. 


Requirements & Eligibility
  • You are a U.S. citizen, permanent resident, or eligible non-citizen.
  • You are enrolled at least halftime in a degree seeking program (based on your school's definition of full and half-time status).
  • You must maintain satisfactory academic progress at your school in order to be eligible for Stafford loans.
  • You do not currently have any Federal loans that are in default.
There are no general deadlines but each school sets their own deadlines.  You might contact your school financial aid office to inquire further details.

Subsidized and Unsubsidized Stafford Loans
There are two kinds of Stafford Loans - subsidized or unsubsidized. They are guaranteed by the federal government. Both subsidized and unsubsidized Stafford Loans limit the maximum amounts you can receive per school year.  The following table compares the key characteristics between these two types of Stafford Loans.
 
  Subsidized Stafford Loans Unsubsidized Stafford Loans
Award Basis
 Need-based Not Need-based
Interest Accrual
 Interest does not accrue while you are in school for at least half of the time or during deferment periods. Interest accrues from the time the loan is disbursed.
Interest Rates 5.60% for the 2009-10 academic year Fixed at 6.80%
Borrowing Limits
  • Freshman: $3,500 per year
  • Sophmore: $4,500 per year
  • Junior: $5,500 per year
  • Senior and 5th year: $5,500 per year
  •  Freshman: $2,000 for dependent students; $6,000 for independent students
  • Sophmore: $2,000 for dependent students; $6,000 for independent students
  • Junior: $2,000 for dependent students; $7,000 for independent students
  • Senior and 5th year: $2,000 for dependent students; $7,000 for independent students
  • Graduate students can borrow up to $20,500 per year, no more than $8,500 may be subsidized.

Interest Rates
Subsidized Stafford Loans, as the name suggests, come with lower interest rates than the Unsubsidized counterpart.  The table below outlines the current interest rates for Subsidized and Unsubsidized Stafford Loans. 
 
Academic Year Subsidized Rates Unsubsidized/Graduate Rates
2009-10 5.60% 6.80%
2010-11 4.50% 6.80%
2011-12 3.40% 6.80%
2012-13 6.80% 6.80%

It is also worth noting that subsidized Stafford Loans are essentially 0% loans when you are enrolled at least half time in higher education, and they don't accumulate any interest until you are out of school.  It can be argued that you should take subsidized loans even if you don't need the money: keep it in the bank for the entire duration, pay off the balance upon graduation, and pocket the difference!


Applying for a Stafford Loan
 
 
 
 
Step 1: File FAFSA and Determine Your Eligibility
You need to file FAFSA to be eligible for Stafford Loans. Then check the eligibility criteria to determine if you are qualified for loan application.
 
Step 2: Choose a Lender
Your school will provide you instructions on obtaining Stafford Loan if it is a Direct Loan school. If you school is a “FFEL School”, you will need to choose a lender. You are free to choose to borrow from any FFEL program participates, including the ones on the list of lenders provided by your school. Research the lenders that you are interested in. While the federal government sets the terms and rates, different lenders might offer incentives that reduce your cost of borrowing. 
 
Step 3: Sign a Promissory Note
After you choose a lender, you will sign a promissory note. It is a legal agreement to repay your loan. Make sure you read and understand the “Borrowers’ Rights and Responsibilities.” 

In addition, you will also have an “Entrance Interview” with your school. It is in-person or online information that walks you through the rights and responsibilities that you should be well aware of. 
 
Then just relax and wait for you school to decide whether you are eligible for Subsidized or Unsubsidized Stafford Loans.


Following Through - Repayment Options

After your graduation, you have six months of the grace period before you begin to repay your loans.  There are five repayment options. 
  • Standard:  even monthly payments for 10 years.
  • Extended: even monthly payment for 12-30 years.
  • Graduated: payments start out low, and gradually increase over a12 to 30 year period. You will pay more interest over the life of the loan than the standard repayment plan.
  • Income Sensitive: monthly payment is based on your yearly income and your loan amount for a 12 to 30 year period. Your payments increase or decrease as your income fluctuates. However the minimum payment must be no less than the interest accrued on the loan between payments. 
  • Income Contingent (only offered by the Direct Loan Program): Payments are based on a borrower's adjusted gross income (AGI), which consists of spousal income, family size, and loan amount. 
In addition to the repayment options, your Federal Stafford Loans can also be consolidated or cancelled.

Consolidation
Stafford Loans are eligible for Federal loan consolidation. By consolidating your loans, you can combine all your student loans into one consolidated loan and extend your repayment term from standard 10 years to up to 30 years. You will benefit from lower monthly payments. For more details, please check out Student Loan Consolidation: When and How.
 
Cancellation
Teachers and some other professionals may qualify for Stafford Loan forgiveness programs. Par of all of the loans may be cancelled. Qualifications for this cancellation option include:
  • Perform volunteer work
  • Public service loan forgiveness
  • Perform military service
  • Teach or practice medicine in certain types of communities
  • Meet other criteria specified by the forgiveness program
For further details, you can visit the official website of Stafford Loans at http://www.staffordloan.com/.
 
Tip: The Federal Stafford Loan does stipulate that students must maintain satisfactory academic performance. Therefore, you might want to contact your financial aid advisor and well understand that their criteria for satisfactory academic performance are.
 


 
Last Updated on Thursday, 16 December 2010 20:59