The largest and most well-known student loan program today is the Federal Stafford Loan, also known as the Federal Direct Loan.
Subsidized and Unsubsidized Loans
The federal government directly offers the Stafford Loan in two different forms: subsidized and unsubsidized.
During in-school, grace, and other deferment periods, such as an economic hardship deferment, the federal government covers the interest on subsidized loans.
During forbearance periods, neither the interest on subsidized loans nor the interest on unsubsidized loans is paid by the federal government.
Financial need determines eligibility for the subsidized Federal Stafford Loan, whereas there is no such requirement for the unsubsidized Federal Stafford Loan. Even wealthy students can qualify for unsubsidized loans.
See also: Complete Guide to Financial Aid and FAFSA
Interest Rates on Federal Stafford Student Loans
Direct loans have fixed interest rates that change for new loans on July 1 each year. Based on the May 10-year Treasury Note Auction, the new interest rate was established.
There are different interest rates for undergraduate and graduate students.
The interest rates are set according to this formula:
Degree Level Formula Cap Undergraduate 10-year Treasury + 2. 05% 8. 25% Graduate 10-year Treasury + 3. 60% 9. 50% .
This table shows the most recent interest rates.
|
Degree Level |
2022-2023 |
2021-2022 |
|
Undergraduate |
4.99% |
3.73% |
|
Graduate |
6.54% |
5.28% |
Loan Fees on Federal Direct Student Loans
Loan fees are deducted from the loan disbursements. The option to add the loan fee to the loan balance is available to borrowers.
The loan fees are about 1. 0%, the same for undergraduate and graduate students. Every October 1st, loan fees are adjusted based on the federal budget.
Fees are charged based on the disbursement date.
The most recent fees are shown in this table:
October 1, 2020, through September 30, 2022, 1 Date Loan Fees 057% October 1, 2019 – September 30, 2020 1. 059% .
Loan Limits on Federal Stafford Loans
There is a yearly cap and an overall loan cap for the Federal Stafford Loan.
Subsidized loan limits are less restrictive than the overall Federal Stafford Loan limits.
Up to the overall limits, borrowers may borrow any sums that they do not receive as subsidized Federal Stafford Loans as unsubsidized Stafford loans.
Additionally, loan amounts vary according to the borrower’s academic year and dependency status.
For dependent and independent students, the subsidized Federal Stafford Loan annual loan limits are the same.
Grade Level Subsidized Stafford Annual Loan Limits Graduate Student None Freshman $3,500 Sophomore $4,500 Junior $5,500 Senior $5,500
There are different annual loan ceilings for dependent and independent students under the unsubsidized Federal Stafford Loan program.
For independent students, the annual loan ceilings are $4,000 or $5,000 higher.
Unsubsidized Stafford Annual Loan Limits By Grade Dependent Students Independent Students Junior $7,500 $12,500 Senior $7,500 $12,500 Graduate Student N/A $20,500 Freshman $5,500 $9,500 Sophomore $6,500 $10,500
The aggregate caps are determined by the level of education, the presence of dependents, and whether the loans are subsidized or unsubsidized. Consider private student loans if you want to borrow more than the federal loan limits.
Overall Loan Limits Undergraduate (Dependent) $23,000 $31,000 Undergraduate (Independent) $23,000 57,500 Graduate + Undergraduate $65,500 $138,500 Aggregate Loan Limits By Grade Level Subsidized Loan Limits
Federal Stafford Loan Eligibility
The borrower’s credit standing, credit history, employment status, or income are not factors in determining whether or not they are eligible for a Federal Stafford Loan.
There is no credit check. There are no cosigners on Federal Stafford Loans.
The student must be enrolled at least half-time in order to be eligible for federal student loans. A Master Promissory Note (MPN) and the Free Application for Federal Student Aid (FAFSA) must be submitted by the student to Studentaid. gov.
Other general loan eligibility requirements for federal student aid must also be met by the student, such as citizenship status, enrollment in a degree- or certificate-granting program, maintaining satisfactory academic progress, and not having any federal student loans or grant overpayments in default.
Federal Stafford Loan funds are disbursed directly to the college by the federal government.
If a student lives in college housing, the financial aid office at the college uses the loan money to pay for room and board in addition to tuition and fees.
Normally, the student receives a “refund” of any remaining credit balance within 14 days. However, some colleges are required by federal regulations to wait 30 days before processing first-time, first-year borrowers.
Additionally, the college might be required to divide the student loan funds into two payments. (Colleges with low cohort default rates may be exempt from the two-disbursement and 30-day delay requirements.) ).
After the student graduates or drops below a half-time enrollment, the federal Stafford loan repayment period starts six months later. The six month period is called a grace period.
Although extended repayment, income-driven repayment, and graduated repayment are additional repayment options, the typical repayment term is 10 years.
With income-driven repayment plans, your monthly payment is determined by your income and the size of your family, which could result in a monthly payment reduction. The remaining balance is forgiven after a specific number of payments have been made (typically 20 to 25 years of payments, depending on the specific plan).
Federal Direct Consolidation Loans are available to borrowers who want to combine their federal student loans. The interest rate on a Federal Direct Consolidation Loan is the rounded-up weighted average of the interest rates on all of the loans that are included in the consolidation loan.
There are several options for forgiveness of Federal Stafford Loans. These typically entail spending some time in a particular profession.
Federal Direct Student Loans are also covered by the August 2022 Biden student loan forgiveness plan.
Examples include Teacher Loan Forgiveness and Public Service Loan Forgiveness.
Federal Stafford Loans can also be canceled in a number of ways. These typically involve circumstances where the borrower is either unable to repay the debt or is not accountable for it.
Examples include a discharge for a closed school, a discharge for a death, a discharge for a total and permanent disability, a discharge for identity theft, a discharge for bankruptcy, a discharge for an unpaid refund, and a discharge for a
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FAQ
Do you have to pay back federal Stafford Loan?
Your federal student loan enters repayment when you graduate, drop below half-time enrollment, or stop attending school. However, you have a six-month grace period prior to being required to start making regular payments if you have a Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan.
Is a Stafford Loan a good loan?
Overall, Stafford loans are the most secure and affordable student loans available, but there are a few drawbacks: In order to qualify for subsidized Stafford loans, you must complete the FAFSA forms and show financial need. Subsidized Stafford loans are not available to graduate students.
What is the difference between a Stafford Loan and a Direct Loan?
The main distinction between a Stafford Loan and a Direct Loan is the lending institution. A bank, savings and loan, or credit union is the lender of a Stafford Loan, whereas the federal government is the lender of a Direct Loan.
Who qualifies for federal Stafford loans?
Only undergraduate students in financial need are eligible for a subsidized loan. While you are enrolled at least half-time, as well as during the six-month grace period following graduation and during periods of deferment or forbearance, the Department of Education pays the interest that accumulates on your behalf.