What Is a Direct Stafford Loan?
Higher education can be expensive, but because of the benefits of a college degree, many people decide it’s worth it to attend. To help with the costs, students can apply for many forms of financial aid that cover everything from tuition to room and board to other education-related charges. One of the most popular types of these student loans is the Direct Stafford Loan. These are low-interest loans from the federal government to help students pay for higher education, whether they’re attending community college, four-year college or graduate school.
Students who are eligible for Stafford Loans receive money from the U.S. Department of Education through the William D. Ford Federal Direct Loan Program. Stafford Loans come in two forms: subsidized and unsubsidized. If you’re considering applying for one of these loans or are helping someone who is, it’s important to learn how they work and what eligibility requirements exist.
The Difference Between Subsidized and Unsubsidized Stafford Loans
When you’re learning about Stafford Loans, it’s important to know that, technically, they’re called Direct Subsidized Loans and Direct Unsubsidized Loans. The Stafford Loan program ended in 2010 and was replaced with the William D. Ford Federal Direct Loan Program, and the loans offered through the latter program are colloquially still referred to as Stafford Loans. More important than the naming conventions, however, are the actual differences in the ways subsidized and unsubsidized loans work.
A Direct Subsidized Loan is a need-based federal loan. This means students and their families have to demonstrate a need for financial assistance because the amount they can afford to pay for college is on a level that’s much less than the cost of attending. To qualify, students have to meet certain income requirements that the federal government sets, and the loan amounts they’re eligible to borrow depend on the school they want to attend. One benefit of these subsidized loans is that students don’t need to pay interest on the loans while they’re in school at least half-time, for the six months after leaving school or while their loan is in a period of deferment. The U.S. Department of Education pays for the interest — or subsidizes it, hence the name — during this time.
The interest remains subsidized on these loans as long as students meet the conditions listed above. Once they drop below half-time, their six-month grace period begins. After that, they must begin paying their loans back, and those loans will begin to accrue interest. The exception to this after a student leaves school is that, during a period of requested deferment, a student can postpone their loan repayments. The U.S. government continues to pay the interest.
An unsubsidized Stafford Loan is not a need-based loan. Most people who apply qualify, though again, the individual school determines the amount a student can borrow. This is based on the school’s tuition as well as the student’s other financial aid availability. A student is charged interest from the time they receive the loan until they’ve completely paid it off, meaning that interest isn’t subsidized by the Department of Education. However, these are typically still very low-interest loans.
Students can opt to defer payment of the interest while they’re in school and during any grace or deferment periods. All accumulated interest during these periods is capitalized, adding to the principal loan amount.
How Much Money Do Students Get?
The amount of money a student can borrow — whether they choose a subsidized or unsubsidized loan — is calculated based on the cost of attendance at their particular school. This can include elements like tuition, fees, room and board, transportation, books, supplies and other qualifying expenses.
A student’s Stafford Loan is first disbursed to their school, where tuition, fees, and room and board costs (if the student lives on campus) are automatically deducted. If funds are left, that remainder is typically sent to the student, though some schools have a different policy. The student can then use those funds to pay for other college-related expenses, which might include personal needs, transportation to and from school, textbooks and supplies.
According to the U.S. Department of Education, “The maximum amount you can borrow each academic year in Direct Unsubsidized Loans ranges from $5,500 to $12,500 for undergraduates, depending on your year in school and your dependency status.” Numbers are similar for Direct Subsidized Loans. Students who are in graduate or other professional degree programs can borrow up to $20,500 a year. Furthermore, there is a cap on how much each student can receive for their entire undergraduate or graduate college career.
The Process of Applying for Stafford Loans
Stafford Loans are available to the majority of students enrolled in higher-education institutions. However, there are some specific requirements a student needs to meet to be eligible for federal student loans. The student must be a U.S. citizen or an eligible non-citizen. They need to be enrolled in their program at least half-time or more. They must also submit the Free Application for Federal Student Aid (FAFSA) before the yearly deadline. A full list of eligibility criteria is available on the Department of Education website.
The government awards Stafford Loans on a yearly basis. Students must re-submit the FAFSA each year they are in school to receive federal aid. That means each year, they must enroll in their institution at least half-time to continue qualifying for Stafford Loans. The main reasons for the annual renewal are that a student’s (or their family’s) financial needs may differ from year to year and that tuition costs may rise each year, too.
FAFSA applications are free to fill out and fairly straightforward — the information needed is fairly standard. To prepare, dependent students who are U.S. citizens should have ready their Social Security number and their parents’ Social Security numbers. Non-citizen applicants need to provide their Alien Registration number. To complete the application, students also need financial details like their parents’ tax information, bank account balances and more.