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 those Stafford Loans (now more commonly known as Direct 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 Direct 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 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 one reason 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 unsubsidized 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 filling out the FAFSA. 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 of 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 Direct 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 subsidized and unsubsidized Direct Stafford Loans disbursed between July 1, 2020 and July 1, 2021, the interest rates for undergraduates is 2.75%.
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 Direct 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 Direct 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 student aid package that may include federal student loans. Unlike most private student loans, however, you don’t need a credit check or a cosigner for most federal student loans.
Your individual school will typically apply your student loans to pay for tuition, fees, room and board, and other school charges. (They factor in any federal grants and work-study you may be awarded as well.) 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-related items like books. (All Direct Stafford Loan funds must be used for education expenses.)
When Do You Have to Pay Back Your Direct Stafford Loan?
The simple answer is: after the grace period. This stretch of rejuvenation, self-realization, and rebirth is perhaps euphemistically called a grace period.
The grace period for Direct Stafford Loan repayment begins the day you officially leave school, and lasts for six months. Also, if you change your student status to less than half-time enrollment, that starts the clock on the grace period, too.
Take note: educational institutions define “half-time enrollment” in different ways. The status is usually, but not always, based on the number of hours and credits in which you’re enrolled. Check with your school’s student aid office to make sure you are in sync with their official definition to make sure everybody is on the same page before you assume that you are entitled to a grace period.
The total timeframe of the Direct Stafford Loan repayment grace period: six months, and not a day more (with a handful of exceptions ). Another thing to keep in mind about that grace period: you may want to make the most of it by starting to pay back that loan in whatever way that you can.
Even though grace periods are meant to give you time to reconfigure, the interest you’re being charged is still “capitalizing.” That means interest is still being added to the loan principal all during your grace period, and that’s not very graceful. (Keep in mind if you have Direct Unsubsidized Stafford Loans, that interest has already been accruing since the day the loan was disbursed.)
One quick thing to keep in mind while on the subject of grace periods: Make sure you know who your student loan servicer is in case you need to reach out to them. You don’t get to choose your own federal student loan servicer. They’re assigned to you by the Department of Education to handle billing and other services. If you have questions regarding your loan, consider contacting your loan servicer.
Repaying Your Direct Stafford Loans
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 federal repayment plans to consider if you need more time to pay off your loans, or lower monthly payments for your Direct Stafford Loans.
There are also Direct Consolidation Loans which allow you to consolidate your federal student loans into one new loan, at an interest rate that’s the weighted average of all your interest rates (rounded up to the nearest eighth of a percent). That typically doesn’t save you money on interest, but does streamline repayment (one loan, one lender, one payment to make each month).
Another option is to refinance your student loans with a private lender, which may be appealing if you’re in a financially stable place and have federal and/or private student loans. If you qualify, you could refinance your Direct Stafford Loan by taking out a new loan with a private loan company at a hopefully lower interest rate.
Before you refinance, know the difference between refinancing and consolidating your loans. You can distinguish them as (broadly) two different strategies: taking out a new loan to replace all of your current student loans (refinancing) as opposed to merely reconfiguring (consolidation).
Refinancing lets you pay off the loans you already have with a brand-new loan from a private lender. This can be done with both federal and private loans. When you refinance, your original loans get paid off completely, and you put those original creditors behind you forever.
The new loan from a private company may allow you to breathe easier with interest rates and repayment terms that work better for you. You can also pick the private lender with the terms that best suit your needs. Don’t be afraid to comparison shop—and don’t forget that SoFi’s student loan refinancing has no prepayment penalties or origination fees!
But refinancing isn’t without its downsides. If you refinance federal student loans with a private lender, you’ll lose access to all the federal benefits and protections—like income-driven repayment options and loan forgiveness for public service work. If you’re looking to keep your federal student loans as federal student loans, you could consider consolidation instead.
Consolidating student loans is simply gathering up all of the loans you currently have and piling them into one loan. As we said above, you can only consolidate federal student loans into a Direct Consolidation Loan. With a Direct Consolidation Loan, your new interest rate is the weighted average of all your interest rates combined (rounded to the nearest eighth of 1%).
The SoFi student loan refinancing 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.
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.
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