Federal Stafford Loans Can Help Students Afford College
College students may be eligible for low-interest loans that are administered by the U.S. Department of Education. To qualify, a student must attend a college that participates in the Federal Family Education Loan Program (FFELP) or the Federal Direct Loan Program and complete the Free Application for Federal Student Aid (FAFSA). Once the FAFSA is processed, a Student Aid Report (SAR) will be sent to the student, as well as the school the student will attend. The financial aid department of the school will determine the amount of loan a student is eligible to receive through the Federal Stafford Loan program.
Subsidized Federal Stafford Loans are need-based, meaning that the amount offered to each student will depend on the student’s resources for paying for college by other means (including parental income). While the borrower is attending school, the federal government pays any accruing interest on these loans.
Unsubsidized Federal Stafford Loans are not need-based and the interest on those loans remains the responsibility of the borrower. For instance, a student can request unsubsidized Federal Stafford loans, once the qualified subsidized loan amount has been filled, without necessarily demonstrating need for those funds. You can receive both types of loans for each academic period, as long as you do not exceed the total loan limits for each year.
Both types of loans offer deferred payment options while the student is attending school, and usually for a six-month “grace” period once the student’s schooling is complete. Interest accrued on an unsubsidized loan can be paid by the student or added to the principal amount of the loan, increasing the total amount needed to pay off the loan.
Undergraduate students may qualify for an amount up to the borrowing limit, depending on their financial need. Subsidized Federal Stafford loan limits for the 2007-2008 academic year are:
Independent undergraduate students or students whose parents were unable to qualify for a Federal PLUS Loan will have different borrowing limits, with variations on the subsidized vs. unsubsidized amounts that can be borrowed.
Graduate and professional-degree students can borrow up to $20,500 per academic year in Federal Stafford loans, with no more than $8,500 of that in subsidized loans.
Federal Stafford Loans can come from the government or from private money lenders. If your school participates in FFELP, your loan will be funded by a bank, credit union, or private money lender. If your school participates in the Federal Direct Loan Program, your loan will come directly from the federal government. In both cases, the money will be sent to the college you are attending and applied toward outstanding college tuition bills first. If there is leftover money once your school tuition and expenses are covered, the school will make those funds available to you. Federal Stafford loan money may be spent on any school-related expense, including college tuition, textbooks, and room and board.
The greatest benefit to students is that Federal Stafford Loans tend to be offered at much lower interest rates than other loans for which most students could qualify. Since the loans are based on need rather than credit history, they are also easier for which to qualify.
In order to determine if they qualify for continued aid and/or Federal Stafford Loans, a student must complete the FAFSA each year. If special circumstances arise that are not reflected by the government’s formula, determining your Expected Family Contribution (EFC), talk with your school’s financial aid department about qualifying for additional assistance.
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