Federal Stafford Loans
The Free Application for Federal Student Aid (FAFSA) is the application for all types of Federal student aid, including student loans. Your eligibility for a Federal Stafford loans will be included the financial aid award letter you receive from the school. The Stafford loan comes in two flavors: Federal Family Education Loan Program (FFELP) and William D. Ford Direct Loans. What’s the difference? FFELP loans are Stafford loans that are borrowed through banks and guaranteed by the states or their designated guarantee agency. Direct Loans are Stafford loans that are borrowed and guaranteed “directly” through the federal government. Your school can tell you in which program they participate. Regardless, they are one and the same. A Stafford loan is a Stafford loan. Freshman can borrow $3,500, Sophomores $4,500, Juniors or Seniors $5,500 and Graduate students $18,500. You can not borrow more than your cost of attendance minus any other financial aid. If you don’t know who to choose for your Stafford loan lender, I suggest visiting eStudentLoan. They provide an excellent list of lenders ready to meet your Stafford borrowing needs.The Stafford loan (be it a FFELP or Direct Loan) carries a fixed interest rate of 6.8%. “Fixed” means that the interest rate on your loan will not change. However, many lenders offer repayment incentives that can actually lower your rate.
Repayment begins on these loans six months after you no longer are attending on at least a half time basis. The six months before repayment is called the grace period.
Stafford loans can be Subsidized, Unsubsidized or a combination of both. Students receiving Subsidized Stafford loans pay no interest on the loan while they are attending college on at least a half-time basis. During the in-school and grace period, the federal government pays the interest for you. Borrowers of Unsubsidized Stafford loans are responsible for the interest during the in-school and grace periods. You can either pay the interest on a quarterly basis or allow the interest to accrue. If you choose to allow the interest to accrue, the interest will be added to the principal and will compound over time. In effect, interest will be paid on interest and principal and so forth.
If you have never borrowed a Stafford loan, you will receive detailed information regarding your Stafford loans when you attend your entrance interview. The entrance interview is a mandatory one-time session where the school will explain to you your rights and responsibilities relevant to your loans.
If you borrow through the FFELP program, you will have to choose a lender. The vast majority of banking institutions participate in the program so, you may even be able to use the bank you have your other accounts through as your lender. However, many schools prefer you borrow through lenders they have established working relationships with and may also suggest you use the guarantee agency used by the state they are located in. In the end, you can use any lender that participates in the FFEL program and we strongly suggest you compare your options.