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Ascent Blog

What is a Stafford Loan?

Nov 10, 2023 | By: Breanna Knight
Categories: Blog, For Students, For Schools, For College Students
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Decoding Stafford loans: what you should know

From scholarships to grants, a whole range of financial aid options are available to students pursuing higher education. But when navigating the world of college financing, Stafford Loans have become a go-to resource for many eligible students. Learn about Stafford loans and how they can help you reach your academic goals today. 

What is a Stafford loan?

Stafford Loans, named after U.S. Senator Robert Stafford, are a type of college loan offered to eligible students enrolled in accredited American institutions to help finance their education. These loans are part of the William D. Ford Federal Direct Loan Program, the largest federal student loan program in the United States. Understanding what a Stafford Loan is can help you make informed decisions about financing your education. 

How Stafford loans differ from typical loans

Unlike other types of personal loans, Stafford Loans are specifically designed for students and come with several benefits that make them a popular choice for financing higher education. To start, they generally offer lower interest rates compared to private student loans.  

Additionally, they provide flexible repayment plans and loan forgiveness programs. Most importantly, the government pays interest on some Stafford Loans while the student is in school, during the grace period, or in periods of deferment. (Note: a grace period is defined as the first six months after leaving school.) 

Exploring the types of Stafford loans

When it comes to Stafford Loans, it’s important to understand the difference between subsidized and unsubsidized loans. Here’s a look at their key differences: 

Subsidized Stafford loans

Subsidized Stafford Loans, now commonly known as Direct Subsidized Loans, are a great option for students with demonstrated financial need. These loans come with an added benefit—the government covers the interest while you are enrolled at least part-time, during the grace period, and any deferment periods. This means you won’t have to worry about interest piling up during these periods, which can make the loan more affordable long term. 

Unsubsidized Stafford loans

Unsubsidized Stafford Loans, also known as Direct Unsubsidized Loans, are available to all students regardless of financial need. With these loans, interest starts accruing when the funds are disbursed. If you defer interest payments while in school, it’s important to note that the accumulated interest will be added to the loan balance. As a result, capitalization will increase the overall repayment amount. 

It is crucial to consider the long-term implications of accruing interest and make an informed decision based on your specific financial circumstances. 

How to apply for a Stafford loan

Considering a Stafford Loan to help finance your education? The first step is to complete the Free Application for Federal Student Aid (FAFSA®). This application collects important information about your financial situation. Your school can then use this information to determine your eligibility for various forms of financial aid, including Stafford Loans.  

Make sure to provide accurate and thorough details on the FAFSA to ensure an accurate assessment of your aid eligibility. Once your FAFSA is processed, your school will include any Stafford Loan you’re eligible for in your financial aid offer. 

Are Stafford loans the right choice for me?

Determining whether Stafford Loans are the right fit for you requires careful consideration of your circumstances. Consider factors such as your financial need, your projected future income, whether or not you’ll be applying with a cosigner, and your comfort level with taking on debt.  

While loans can provide valuable financial support for your college education, it’s crucial to understand that they come with the responsibility of repayment, often with interest. Assess your financial situation and weigh the benefits and potential drawbacks of Stafford Loans before deciding.  

Exploring other sources of financial aid, such as scholarships and grants, can also be beneficial in reducing the overall amount of debt you may incur. 

Stay informed with Ascent

From financial wellness resources to scholarship opportunities, Ascent is committed to helping students and their families make informed financial decisions—in college and beyond. Learn more about how our cosigned student loan options can help supplement your federal loans to cover more of your education costs. 

Frequently Asked Questions

Are Stafford loans federal loans?

Stafford Loans are federal loans administered by the U.S. Department of Education. As part of the William D. Ford Federal Direct Loan Program, the federal government provides these loans directly to eligible students. The government acts as the lender, offering the loan funds and managing the loan throughout its lifecycle. 

As with other federal loans, Stafford Loans come with certain advantages. They typically offer more favorable terms and borrower protections compared to private loans. Additionally, federal loans provide access to various repayment plans, forgiveness options, and potential deferment or forbearance opportunities in case you face financial hardship.

Do Stafford loans have to be repaid?

Yes, like all student loans, Stafford Loans do require repayment. However, repayment typically starts six months after you graduate, leave school, or drop below half-time enrollment. This grace period gives you a transition period to find employment and establish your financial footing before you begin making loan payments.  

Interest may still accrue during this grace period for unsubsidized Stafford Loans, so it’s worth considering whether making interest payments during this time would benefit you in the long run. 

Understanding the repayment terms and options for Stafford Loans is crucial for planning your financial future and ensuring timely repayment without undue burden. 

Can you get denied for a Stafford loan?

Although Stafford Loans are designed to benefit most students, they have some eligibility requirements. For instance, you must be enrolled at least half-time in a program that leads to a degree or certificate.  

You also need to maintain satisfactory academic progress. Your financial situation could also affect your eligibility for subsidized Stafford Loans based on financial need. It’s important to understand these requirements before you apply for a Stafford Loan. 

How much can you borrow with a Stafford loan?

The amount you can borrow with a Stafford Loan depends on several factors, including your year in school, whether you are a dependent or independent student, and whether the loan is subsidized or unsubsidized. For dependent students, the annual borrowing limit for subsidized loans ranges from $3,500 for first-year undergraduate students to $5,500 for third- and fourth-year undergraduate students. The total loan limit for dependent students is $31,000, of which at most $23,000 can be in subsidized loans. 

For independent students, the annual borrowing limit for subsidized loans is the same as for dependent students. However, independent students can borrow more in unsubsidized loans, with the total annual borrowing limit ranging from $9,500 for first-year undergraduate students to $12,500 for third- and fourth-year students. The total loan limit for independent students is $57,500, of which at most $23,000 can be in subsidized loans.   

Graduate or professional students, considered independent, can borrow up to $20,500 per year in unsubsidized loans, with an aggregate limit of $138,500, including loans received for undergraduate studies. Planning your borrowing carefully ensures you only hit these limits after you complete your education. 

What is the interest rate on a Stafford loan?

The federal government determines the interest rate on a Stafford Loan, which is fixed for the life of the loan. For loans first disbursed on or after July 1, 2023, and before July 1, 2024, the interest rate for undergraduate unsubsidized and subsidized Stafford Loans is 5.50%. For graduate or professional unsubsidized Stafford Loans, the rate is 7.05%. These rates are often lower than those for private student loans, making Stafford Loans a potentially more affordable option for students. 

Can Stafford loans be forgiven?

Yes, your Stafford Loans can be forgiven under certain circumstances, meaning you won’t have to repay some or all of the loan. For instance, the Public Service Loan Forgiveness (PSLF) program forgives the remaining balance on your Direct Loans after you have made 120 qualifying payments while working full-time for a qualifying employer, typically a government or non-profit organization.  

There are also loan forgiveness programs for teachers and for those serving in the military. It’s important to understand the requirements for these programs if you’re considering pursuing loan forgiveness. 

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