Federal Stafford Loan

Stafford loans (FFEL and Direct loans) are the most common form of financial aid for students in need of financing their continuing education.  As such, you must understand the way in which these loans operate in order to receive maximum benefit from them. In addition to many standard questions about these loans, there are a number of changes being instituted that you will also need to understand.  That said, Stafford loans continue to be the single largest (combined) source of funding for continuing education for the broadest range of students.  Students unable to qualify for Pell Grants and FSEOG funding can apply for Stafford loans in order to offset the cost of education.

What are Stafford loans?

Stafford loans are a group of financial loans, including FFEL and Direct loans, made through a joint effort of the government, participating schools and participating lenders.  As such, they form a large basis of any financial aid package and can be combined with other financial aid, such as Pell grant.

Unlike grants, Stafford loans must be repaid after graduation, a drop to less than halftime attendance at school and other criteria.  In addition to the amount of the loan, interest is charged on each loan and must be repaid with loan payments.  If a Stafford loan is in default, collection fees and charges can result and must also be repaid.

How much can I get from a Stafford loan?

The amount of money available through these loans varies by course of study, year of attendance and whether you are a dependent student or an independent student.  Typically, independent students are eligible for larger loan amounts because they have lower EFCs (Estimated Family Contributions).  The typical dependent freshman can expect to receive $3,500 if you are enrolled full time (as of the 12-13 school year).  A dependent sophomore can expect up to $4,500 if enrolled full time and the next year also consists of a full enrollment year.  A junior can expect up to $5,500 for a full year of enrollment with an anticipated full year following.

Independent students can expect significantly more money from these loans.  For instance, an independent freshman enrolled full time can expect up to $7,500, though only $3,500 of that can be in subsidized loans.  An independent junior can expect up to $10,500, though only $5,500 can be unsubsidized.  These loan amounts are based on the 12-13 enrollment year and must be full time.

What changes have been introduced in Stafford loans?

There have been significant changes made to Stafford loans that will take effect July 1, 2012.  The most significant change is in the interest rate charged for each year.  The 12-13 enrollment year will carry an interest rate of 3.4% on the unpaid balance of the loan. This interest applies to the unpaid balance of the loan only.

It is important to note that these interest rate changes affect only loans made after that date and do not change the interest rate on loans already in effect.

In addition, other changes have been made in these loans.  Students will now be required to pay a fee of up to 4% of the total loan.  This fee will go to the federal government, as well as the loan lender.  This amount will not be paid during loan payments, but will be taken from the total loan amount on payment each year.  For example, if you were awarded a loan of $3,500, the 4% fee would be $140, resulting you an actual usable amount of $3,360.  Collections and late fees will also be applied to all FFEL and Direct loans if payments are not made on a timely basis.

When do I begin repaying the loans?

Loan repayment is a necessary evil; if you wish to use these loans to further your education, you must take repayment into account.  Failure to do so can result in collection fees, late fees, legal action and a blemish on your credit report.  Once you have graduate, dropped below halftime enrollment or left the program for any reason, you will have a 6-month grace period. During this time, you will receive repayment information, including monthly repayment amounts, payment location and other vital information.

It is vital that you make your payments on time, each month.  Failure to do so can be disastrous.  There are very few reasons for the complete negation of payments, though school closure (complete closure) is one of them.  Failure to complete your program, a loss of interest in the course of study and most other occurrences will not affect repayment.

How do I apply for Stafford loans?

The key to attaining funding (Stafford loans, Pell Grants, etc) is to fill out an FAFSA.  This single form is the first step to getting the money you need to continue your education and attain the degree of your choice.  Without this form, you will have to rely on whatever loans you are able to find on your own.  In addition to the FAFSA, there are several items you will need in order to be considered for financial aid packages.  A driver’s license, valid Social Security card, bank statements, current tax return information, current W-2s and mortgage information are all required, though there are others specified on the FAFSA.

Your guidance counselor can help you gather all required documentation, though you can also find electronic versions of the FAFSA online.

How do I get the money?

As with other sources of financial aid, your school will distribute your Stafford loan funds.  They will make at least 2 payments to you over the course of the enrollment year (no payment can exceed half of the total amount).  In addition, they may choose to pay you quarterly, by semester or by trimester; each school will have different options, dependent on the structure of their school enrollment year. In addition, the school may choose to put a portion of the amount directly towards tuition, or break the amounts up between a check to you and direct tuition payment.