Administered by the U.S. Department Of Education as financial aid to college students, Federal Stafford loans are the most common source of college loan funds. These low interest loans are available in both subsidized and unsubsidized forms. There are two Federal Stafford loan programs, the Federal Family Education Loan (FFEL) and the William D. Ford Federal Direct Loan program. With the FFEL Federal Stafford loan, private lenders disburse funds, while the funds from the Direct Loan program come directly front the federal government. Both offer the same loan amounts and eligibility rules, but repayment plans are a bit different.
Federal Stafford Loan Basics
Federal Stafford loans are low interest, long-term student loans. The details differ according to which form of Federal Stafford loan for which you are approved, and the programs your particular school participates in. For all Stafford loans first disbursed on or after July 1, 2006, the interest rate is fixed at 6.8 percent. Older Stafford loans, disbursed between July 1, 1998 and June 30, 2006 are variable rate loans, with new interest rates set on a yearly basis and a cap of 8.25 percent.
Subsidized Federal Stafford loans are awarded on a need based formula, meaning that the applicant must be income qualified. Among the advantages of a subsidized loan is fewer interest payments. As long as the student remains at least half time enrollment, the government pays the interest. No interest accrues on a subsidized Federal Stafford loan until six moths after graduation or a drop in enrollment below half time, nor are any payments due on the principal.
Unsubsidized Federal Stafford loans begin to accrue interest as soon as the funds are dispersed. However, the interest payments can deferred and added to the principal of the loan, or capitalized, increasing the amount owed after graduation. This loan also allows a six-month grace period after graduation before payments on the principal become due.
Federal Stafford loans originating from the Federal Family Education Loan (FFEL) program are funded by private lending institutions. These lenders set repayment terms, and all payments are sent directly to them. Financial aid offices usually can provide a list of available Federal Stafford Loan lenders.
If your Federal Stafford loan comes through the William D. Ford Federal Direct Loan program, its funds will be disbursed directly from the federal government, and all loan payments are made directly to the government after graduation.
How to Apply for the Stafford Loan
The first step in qualifying for any federal student aid is to complete the Free Application for Federal Student Aid (FAFSA), either online or by visiting your college financial aid office. With the help of this form, which will ask for details that include your schooling plans, citizenship status, and financial information, your eligibility for financial aid can be determined.
Once the FAFSA is processed, you will be sent a copy of your Student Aid Report, or SAR. A copy will be sent to the college you plan to attend as well. Shortly after they receive your Student Aid Report, the school will send you a financial aid award letter that will inform you of which financial aid programs are available to you, leaving you free to choose which of these you will use.
If your financial aid award letter shows you to be eligible for a Federal Stafford loan, you can fill out the application or in your college financial aid office. If applying online, be sure to print and sign the promissory note and keep a copy of your application.
Once these steps are completed, the lender will make the Federal Stafford loan funds available to your college for disbursements. This will be done on a schedule determined by the college and the funds will be applied directly to tuition costs. If there is a remaining balance after the tuition is settled, you will be given the option to have that amount refunded to you or applied to loan repayment.
Federal Stafford loans are among the most affordable of education loans available for undergraduate and graduate students today. Low interest rates and payment deferrals until after graduation can make these government financial aid programs easier than most for the student to manage. With the solid backing of the Federal Stafford loan program behind you, relieving some of the financial stress involved with higher education, you will be free to excel in college and graduate with the credentials needed to embark on a successful and satisfying career.