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Financing your education: Stafford Loans. The U.S. Department of Education administers the
Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan
Program (Direct Loan or DL). Both the FFEL and Direct Loan programs consist of what are
generally known as Stafford Loans (for students) and PLUS Loans
(for parents).
Schools generally participate in either the FFEL or Direct Loan program but sometimes
participate in both. Under the Direct Loan Program, the funds for your loan come directly
from the federal government. Funds for your FFEL will come from a bank, credit union, or
other lender that participates in the program. Eligibility rules and loan amounts are
identical under both programs, but repayment plans differ somewhat.
How can I get a FFEL or Direct Loan?
For either type of loan, you must fill out a Free Application for Federal Student Aid (FAFSA). After
your FAFSA is processed, your school will review the results and will inform you about
your loan eligibility. You also will have to sign a promissory note, a binding legal
document that lists the conditions under which you're borrowing and the terms under which
you agree to repay your loan.
How much can I borrow?
It depends on your year in school and whether you have a subsidized or unsubsidized Direct
or FFEL Stafford Loan. A subsidized loan is awarded on the basis of financial need. If
you're eligible for a subsidized loan, the government will pay (subsidize) the interest on
your loan while you're in school, for the first six months after you leave school, and
when you qualify to have your payments deferred. Depending on your financial need, you may
borrow subsidized money for an amount up to the annual loan borrowing limit for your level
of study.
You might be able to borrow loan funds beyond your subsidized loan amount or even if you
don't have demonstrated financial need. In that case, you'd receive an unsubsidized loan.
Your school will subtract the total amount of your other financial aid from your cost of
attendance to determine whether you’re eligible for an unsubsidized loan. Unlike a
subsidized loan, you are responsible for the interest from the time the unsubsidized loan
is disbursed until it is paid in full. You can choose to pay the interest or allow it to
accrue (accumulate) and be capitalized (that is, added to the principal amount of your
loan). Capitalizing the interest will increase the amount you have to repay.
You can receive a subsidized loan and an unsubsidized loan for the same enrollment period
as long as you don't exceed the annual loan limits.
If you're a dependent undergraduate student, each year you can borrow up to:
$2,625 if you're a first-year student enrolled in a program of study that is at least a
full academic year;
$3,500 if you've completed your first year of study and the remainder of your program is
at least a full academic year;
$5,500 if you've completed two years of study and the remainder of your program is at
least a full academic year.
If you're an independent undergraduate
student or a dependent student whose parents have applied for but were unable to get a
PLUS Loan (a parent loan), each year you can borrow up to:
$6,625 if you're a first-year student enrolled in a program of study that is at least a
full academic year (no more than $2,625 of this amount may be in subsidized loans);
$7,500 if you've completed your first year of study and the remainder of your program is
at least a full academic year (no more than $3,500 of this amount may be in subsidized
loans);
$10,500 if you've completed two years of study and the remainder of your program is at
least a full academic year (no more than $5,500 of this amount may be in subsidized
loans).
These amounts are the maximum yearly
amounts you can borrow in both subsidized and unsubsidized FFELs or Direct Loans,
individually or in combination. Because you can't borrow more than your cost of attendance
minus the amount of any Federal Pell Grant you're eligible for, and minus any other
financial aid you'll get, you may receive less than the annual maximum amounts.
How will I get the loan money?
For both the Direct Loan and FFEL programs, you'll be paid through your school in at least
two installments. No installment may exceed one-half of your loan amount. Your loan money
must first be applied to pay for tuition and fees, room and board, and other school
charges. If loan money remains, you'll receive the funds by check or in cash, unless you
give the school written authorization to hold the funds until later in the enrollment
period.
If you're a first-year undergraduate student and a first-time borrower, your school cannot
disburse your first payment until 30 days after the first day of your enrollment period.
This practice ensures you won't have a loan to repay if you don't begin classes or if you
withdraw during the first 30 days of classes.
What's the interest rate?
The interest rate is variable (adjusted annually on July 1st) but does not exceed 8.25
percent. You'll be notified any time the variable rate changes. For 2003-04, the interest
rate for loans in repayment on or after July 1, 1998 is 3.42 percent (lower during grace
and deferment periods).
Other than interest, is there a charge for this loan?
You’ll pay a fee of up to 4 percent of the loan, deducted proportionately from each
loan disbursement. For a FFEL Stafford Loan, a portion of this fee goes to the federal
government, and a portion goes to the guaranty agency (the organization that administers
the FFEL in your state) to help reduce the cost of the loans. For a Direct Stafford Loan,
the entire fee goes to the government to help reduce the cost of the loans. Also, if you
don’t make your loan payments when scheduled, you may be charged collection costs and
late fees.
When do I pay back my Stafford Loans?
After you graduate, leave school, or drop below half-time enrollment, you will have a
six-month "grace period" before you begin repayment. During this period, you'll
receive repayment information, and you'll be notified of your first payment due date.
You're responsible for beginning repayment on time, even if you don't receive this
information. Payments are usually due monthly.
During the grace period on a subsidized loan, you don’t have to pay any principal,
and you won’t be charged interest. During the grace period on an unsubsidized loan,
you don’t have to pay any principal, but you will be charged interest. You can either
pay the interest or it will be capitalized (added to your principal loan balance, thus
increasing the amount you’ll repay).
How do I pay back my loans?
You’ll repay your FFEL Stafford Loan to a private lender or loan servicer.
You’ll repay your Direct Loan to the U.S. Department of Education’s Direct Loan
Servicing Center. Both the Direct Loan and FFEL offer four repayment plans you can choose
from, but the terms differ slightly. You will receive more detailed information on your
repayment options during entrance and exit counseling sessions your school will provide..
What if I have trouble repaying the loan?
Under certain circumstances, you can receive a deferment or forbearance on your loan, as
long as it’s not in default. During a deferment, no payments are required. You
won’t be charged interest for a subsidized FFEL or Direct Stafford loan. If you have
an unsubsidized Stafford Loan, you are responsible for the interest during deferment.
If you’re temporarily unable to meet your repayment schedule (for example due to poor
health or other unforeseen personal problems), but you’re not eligible for a
deferment, your lender might grant you forbearance for a limited and specified period.
Can my Stafford Loan ever be discharged (canceled)?
Yes, but only under a few circumstances. Your loan can’t be canceled because you
didn’t complete the program of study at the school (unless you couldn’t complete
the program for a valid reason—the school closed, for example), or because you
didn’t like the school or the program of study, or you didn’t obtain employment
after completing the program of study.
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