Direct Stafford Student Loans

There are numerous financial aid options for students who need help with their college tuition. Other than a grant or scholarship, the best option is a federal student loan.

Stafford student loans are often referred to as direct Stafford loans because they are funded directly by the federal government rather than a private lender. Direct Stafford loans are the most commonly used federal student loans. Two of the main advantages of these loans are that they do not require a credit check, and they do not require a co-signer or collateral. This allows even low income students to pay for their education.

Stafford loans can be used toward any college expenses, including tuition, room and board, books and lab fees.

Renters Can Strengthen Their Credit

How Much Can You Borrow?

All federal student loans, including direct Stafford loans, have an annual and overall limit on the amount of money that can be borrowed. This limit is determined by whether the loans are subsidized or unsubsidized, whether the student is claimed as a dependent on tax returns, how many years of college the student has left, and whether the student is in medical school.

Sometimes an exception allows students to borrow more than would normally be allowed. Students who go on to the next grade in the middle of the academic year, or students who transfer to a different school, may be able to borrow more. The financial aid office at any college or university can determine if a student qualifies for one of these exceptions.

Stafford loans are available either subsidized or unsubsidized, and each type of loan has different qualifications.

Unsubsidized loans: An unsubsidized loan has no income requirements, and is the only federal loan which is also available for students getting graduate degrees. Students who are claimed as dependents on tax returns are limited to borrowing a lower amount than students who are not dependents. Students who are not dependents can borrow approximately $5000 more each year, for an overall difference of around $26,000.

The cumulative limit for the loans of graduate students also includes all unpaid undergraduate loans.

Students enrolled in a medical school can borrow much higher amounts, due to the expense of these schools. The yearly limit for medical students is $40,500, and this includes traditional medical school, but also dentistry, veterinary medicine, and podiatry. Other medical programs, such as psychology, are limited to $33,000 per year.

Subsidized loans: Subsidized loans are for students in financial need, whose income is under a certain threshold. Dependent and independent students have identical limits, and these limits are lower than those for unsubsidized loans. The biggest advantage to subsidized loans is that interest does not accrue until after graduation.

If a student needs to borrow more than a subsidized loan allows, he or she may be able to borrow an additional unsubsidized amount up to the limits of unsubsidized loans.

Do You Qualify?

To receive a direct Stafford loan, students must apply for them, using a form called the FAFSA. Students are given a Student Aid Report (SAR) that tells them whether they are eligible for subsidized or unsubsidized loans, and how much they can borrow.

To be eligible for Stafford loans, students must be U.S. citizens or permanent residents, attend a Title-IV-eligible school, and cannot have defaulted on any other federal student loan.

What Are the Fees and Interest Rates?

The interest rates during the 2014-2015 school year were 4.66% for undergraduate students, and 6.21% for graduate students.

Since July of 2010, a 1% origination fee is applied to each Stafford loan, and loan fees cannot be added to the principal balance.

Interest rates are fixed at the time when the loan is given, but each year’s loan may have a different rate.

Repayment Terms

Most direct Stafford loans are repaid over a period of ten years. There are four types of repayment plans, and the student can choose which one is most appropriate for him:

  • Standard Repayment Plan: This is a fixed monthly payment which must be at least $50 or the amount of interest which accrues each month.
  • Graduated Repayment Plan: Monthly payments begin at a low amount, and rise each year until the loan and interest is repaid in full.
  • Income-Based Repayment Plan: Monthly payments are based on yearly income, and payments are based on a table provided by the government. Payments are determined once each year.
  • Extended Repayment Plan: If the total amount of loans and interest exceeds $30,000, borrowers can take up to 25 years to repay their loans. These payments can be fixed or graduated.

As long as a student is taking at least half of a full course load of classes, he or she is not required to make payments. If loans are unsubsidized, interest begins to accrue as soon as the loan is received.

Students need to be cautious, and not borrow more than what is absolutely necessary. However, direct federal loans, like Stafford loans, are eligible for student loan forgiveness.

The Bottom Line

For most students, direct Stafford loans are a great choice for funding their education, because of their low interest rates and flexible repayment plans. To learn more about Stafford loans and other financial aid options, make an appointment at your school’s financial aid office.