Direct Stafford Loans (also called simply Stafford Loans) are the most common federal student loans available for students seeking financial aid for college. While there are Stafford Loan limits, most students who fill out the Free Application for Student Aid (FAFSA®) can receive some amount of financial aid, whether the loans are subsidized or unsubsidized.
While the FAFSA is how to apply for a Stafford Loan before you enter college, students must remember to resubmit the form every year. Your needs may shift from year to year (especially with rising tuition costs) or your family’s financial situation might change.
Because of that, the federal government requires that you reapply for financial aid (including Stafford Loans) every year you’re enrolled in school. Here are some other important facts, deadlines, and tips to get you ready to apply.
What is a Stafford Loan?
A Stafford Loan is a common name for the federal student loans available to eligible students directly from the U.S. Department of Education. These Direct subsidized or unsubsidized federal loans are often referred to as Stafford Loans or Direct Stafford Loans, which are offered under the William D. Ford Federal Direct Loan (Direct Loan) Program.
In 1988, Congress changed the name of the Federal Guaranteed Student Loan program to the Robert T. Stafford Student Loan program in honor of higher education champion, Senator Robert Stafford. This is why Stafford Loans are sometimes referred to by different names.
Direct Stafford Loans are taken out in the student’s (not a parent’s) name. Before accepting any loans as part of a financial aid package, it’s important to understand the fundamental differences between the two types of Stafford Loans you can apply for: subsidized or unsubsidized.
Subsidized vs Unsubsidized Loans
There are two different types of Direct Stafford Loans : subsidized and unsubsidized. With a subsidized Stafford Loan, the government will pay the interest that adds up while you are in school at least half-time, during the loan’s grace period (the first six months after graduating or dropping below half-time enrollment), and during a deferment—an official postponement of payments.
To be eligible for subsidized Stafford Loans, you must also meet income requirements for need-based aid. Your school determines the amount you can borrow. As of 2012, subsidized Stafford Loans were no longer available for graduate or professional students.
Unsubsidized Stafford Loans start to accrue interest as soon as the money is paid out to your school. These loans are available to undergraduate, graduate, and professional students, and there is no requirement to demonstrate financial need. You do not necessarily need to start paying back these Direct Stafford loans while you are in school, but you are responsible for the interest at all times—including before you graduate and during your grace period.
You can also estimate your federal student aid eligibility before applying. If you have the flexibility to only accept some of your financial aid package, you may want to consider accepting subsidized loans before unsubsidized (if you’re eligible) in order to take advantage the potential interest savings.
Stafford Loan Limits and Rates
It is up to your school to determine which loan type and loan amounts you can receive every year. There are Stafford Loan limits, which are determined by your current year in school and whether you are considered a dependent or independent student .
First-year undergraduate dependent students are eligible for Direct loans of up to $5,500, but only $3,500 of that amount can be subsidized. (Note: this excludes students whose parents are ineligible for Direct PLUS Loans .)
This amount can increase with each year you’re in school at least half-time, with higher limits for eligible graduate students. Interest rates vary, and can change every year or so. For loans disbursed between July 1, 2018 and July 1, 2019, the interest rates on federal student loans for undergraduates is 5.05%.
For undergraduate dependent students, the current annual loan limits are as follows:
• First Year: $5,500 maximum, no more than $3,500 subsidized
• Second Year: $6,500 maximum, no more than $4,500 subsidized
• Third Year and Beyond: $7,500 maximum, no more than $5,500 subsidized
• Total Stafford Loan Limits: $31,000 max, $23,000 subsidized
As you can see above, the loan limit amounts are different depending on which year you are in school. Additionally, loan limits differ for dependent and independent students. Graduate or professional students can take out a maximum of $20,500 annually, but only in unsubsidized loans.
If you are a dependent student and your parents are not eligible for a Direct Parent PLUS Loan , you might be able to take out additional Direct Unsubsidized Loans. Additionally, you can’t receive Direct Subsidized Loans for more than 150% of the published length of your degree program . For instance, if you are in a four-year bachelor’s degree program, the maximum amount of time you can receive Direct Subsidized Loans is six years.
How to Apply for a Stafford Loan
In order to qualify for Direct Loans, you must be a U.S. citizen, permanent resident, or eligible non-citizen; enrolled at least part-time in an accredited college; and not in default on any other education loan.
Students can apply for all federal financial aid online via the FAFSA® website. According to the Department of Education, almost every FAFSA applicant is eligible for some kind of loan package. Unlike most private loans, you don’t need a credit check or a cosigner for federal student loans.
Your individual school will typically apply your loans to pay for tuition, fees, room and board, and other school charges. If any additional funds remain, they will be returned to you, which is why it’s important to carefully consider the amount of loan funding you need.
While a loan refund may be nice in the moment, you still have to pay interest eventually on that leftover money—though some students might find the funds useful for other school items like books. (All Direct Stafford Loan funds must be used for education expenses.)
Repaying Your Direct Stafford Loans
Whenever you graduate, drop to under half-time enrollment, or leave school, you typically have a six-month grace period before you must start to repay your Stafford Loans. During this time, you should receive payment information from your loan servicer and be notified of your due date. (An important note: you are still responsible for making payments on time every month, whether you get a bill, notice, or reminder—or not.)
Your initial repayment plan will probably be the Standard Repayment Plan , which sets your monthly payment to whatever amount will get your loans paid off in 120 payments, or 10 years. However, there are many alternative repayment plans to consider if you need more time to pay off your loans, or lower monthly payments for your Direct Stafford Loans.
The SoFi student loan calculator can help estimate if you might save money in the long term by refinancing your student loans. Refinancing your student loans with a private lender is an alternative to federal loan repayment plans, and doesn’t offer the same federal benefits and protections that federal student loans do.
However, it may be an option to consider for those who wind up with high-interest student loans (whether federal or private) or many unsubsidized Direct Stafford Loans, by possibly offering a lower interest rate and shorter term, or lower monthly payments over more time. The SoFi student loan calculator can help estimate if you might save money in the long term—when and if the time comes—by refinancing your student loans.
Student loans can get complicated—SoFi is here to help. From helping you finance your education to helping you get out of your college debt, we’ve got you covered.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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