An Overview of Stafford Loans
Stafford Loans (also known as Direct Stafford Loans) are the main federal loan program
for undergraduate and graduate students. They
are essentially student loans guaranteed by the
government (meaning the government protects the lender in case you default).
Because the government is backing
your loan, Stafford loans will almost always be cheaper
than private loans, offering you a lower interest rate.
Unsubsidized vs. Subsidized
When doing research on Stafford loans, you'll probably
notice that there are essentially two types of Stafford
loans: Unsubsidized and Subsidized. These terms basically
refer to the interest you are being charged while in school.
For subsidized Stafford loans, the government is helping
you out, picking up the tab on your interest payments while
you are in school. This is a major savings for student
borrowers. This means that the amount you borrow will be
the amount you owe when you enter repayment (plus whatever
up-front fees the lender may charge).
For unsubsidized Stafford loans, you're responsible for
the interest on your student loan during college or graduate
school. You can defer these interest payments until after
graduation, but the interest will be capitalized, meaning it
will be added to your principal. This will increase the cost
of your unsubsidized Stafford loan.
The good thing about the unsubsidized Stafford loan
is that every student is eligible to receive one, regardless of
their financial need. You need to qualify, based on your
financial need, to receive a subsidized Stafford loan.
If you are eligible for a subsidized Stafford loan, you will
see it as part of your financial aid package from your college
or graduate school.
FFELP vs. Direct
You may come across the terms FFELP and Direct Loans in reference
to Stafford loans. These are the two programs for distributing
Stafford loans. Each college decides which program it wants to
use for its students. Most colleges participate in one program
or the other, but some actually participate in both.
Under the FFELP program, you will get your Stafford from a
lender (like Discover Financial Services, Sallie Mae, or CitiBank).
In this situation, you need to make a decision about which lender
is right for you. Colleges will often present you with a Lender
List containing information about the Stafford loans offered by
various lenders. You have the option of picking a lender off this
Lender List or going with another lender that you may have
uncovered in your research.
Under the Direct Loan program, the federal government is your
lender. In this situation, you do not have to worry about researching
banks on a Lender List or picking a lender. The choice has been made for you.
For both FFELP and Direct Stafford loans, you will receive
the actual loan disbursements from your college or graduate school.
Recently, the FFELP program has been eliminated and all loans are currently originated under the Direct Loan Program.
Stafford Loan Limits
There are limits to how much you can borrow through the Stafford
Loan program. These take into account both your subsidized and
unsubsidized Stafford loans for a given school year. As you can see,
these limits vary by your year in school and by your status as an
independent or dependent student.
Year in School
Junior / Senior
Graduate / Professional
Stafford Interest Rates
The interest rate on the Stafford is set by the government.
You don't have to worry that a poor credit score is going to
result in a high interest rate. We've provided a year-by-year
look at the Stafford interest rates over the next few years.
Upfront Fees on Stafford Loans
There are two types of fees you may see on Stafford loans:
an Origination Fee and a Federal Default Fee. The origination
fee is a fee charged by a lender to cover administrative costs
for the loan. The origination fee is deducted from the principal.
The federal default fee is intended to fund services to help
student-loan borrowers who experience difficulty making their
payments so they can avoid some of the expense and consequences
of defaulting on their loans.
The origination fee on a Stafford loan can be up to 1.5%, and
the federal default fee can be up to 1%. In some cases, the
lender may choose to cover or waive the fee. When you see the
term zero-fee loan, it is usually a reference to the fact that
a borrower is not responsible for paying either of these upfront fees.
Applying for a Stafford Loan
You must complete the Free Application for Federal Student Aid
in order to be eligible. This is true for both the subsidized and unsubsidized Stafford loan.
Find a Stafford Loan
You can use our Student Loan Marketplace to
find and compare school loans! or, if you are graduate, consolidate your college loans.