What Is A Federal Stafford Loan?

Stafford loans are a way of the federal government helping students pay their college fee, as a loan to be repaid in due time.

Statistics prove that more than 33 million people have student loans to pay for college, and of course, with the rising amount of expenses and the cost of tuition, student loans are becoming very popular across the country.

There are several types of loans a person can take to fund the cost of college, like parent loans, conventional student loans, stafford loans etc. One very popular loan option is the Stafford loan.

Let’s get into details of what it is and how the Stafford loan works.

Stafford Loan Definition

A stafford loan is a type of student loan given for them to pay the cost of their higher education. This kind of loan is funded by the Federal government, meaning the funds come directly from The US Department of Education, and are to be paid to them only.

Stafford loans MUST be repaid in due time, and are given to undergraduate and graduate students too.

There are two types of Stafford Loans:

  • Subsidized Stafford Loan: A loan for which the government pays the interest while you are in school, during grace periods, and during any deferment periods.
  • Unsubsidized Stafford loan: A loan for which you are responsible for paying all the interest that accrues from the date of the first disbursement until the loan is paid in full.
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Stafford Loan Interest Rate

The interest rate on the Stafford loan is decided by the federal government (not The US Department of Education) in the year that you borrow the loan. It is accumulated with the principal amount of the loan and has to be paid in the duration of the repayment. The interest rates for 2020-2021 are:

Undergraduate Borrowers Graduate or Professional Borrowers Parents and Graduate or Professional Students
2.75% 4.30% 5.30%
Direct Subsidized Loans and Direct Unsubsidized Loans Direct Unsubsidized Loans Direct PLUS Loans

Stafford Loan Eligibility

As compared to private student loans, a stafford loan is easier to obtain. Since these are funded by the federal government, they don’t need the borrower to have an excellent credit rating or a steady source of income- which is a good thing for students.

To qualify for a stafford loan, the borrower must:

  • Be a U.S. citizen, national, or eligible non-citizen
  • Be enrolled at least half-time in an eligible degree or certificate-granting program
  • Have received a high school diploma or equivalent (like the GED)
  • Not in default on any existing federal student loans
  • Meet general eligibility requirements for federal student aid

Stafford Loan Limits

First Year Undergraduate Loan Limit

  Dependent Students (except students whose parents are unable to obtain PLUS Loans) Independent Students (and dependent undergraduate students whose parents are unable to obtain PLUS Loans)
Subsidized Loan Limit $3,500 $3,500
Unsubsidized Loan Limit $2,000 $6,000
Total Loan Limit $5,500 $9,500

Second-Year Undergraduate Annual Loan Limit

  Dependent Students (except students whose parents are unable to obtain PLUS Loans) Independent Students (and dependent undergraduate students whose parents are unable to obtain PLUS Loans)
Subsidized Loan Limit $4,500 $4,500
Unsubsidized Loan Limit $2,000 $6,000
Total Loan Limit $6,500 $10,500
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Third Year and Beyond Undergraduate Annual Loan Limit

  Dependent Students (except students whose parents are unable to obtain PLUS Loans) Independent Students (and dependent undergraduate students whose parents are unable to obtain PLUS Loans)
Subsidized Loan Limit $5,500 $5,500
Unsubsidized Loan Limit $2,000 $7,000
Total Loan Limit $7,500 $12,500

Graduate or Professional Student Annual Loan Limit

  Dependent Students (except students whose parents are unable to obtain PLUS Loans) Independent Students (and dependent undergraduate students whose parents are unable to obtain PLUS Loans)
Subsidized Loan Limit Not Applicable (all graduate and professional students are considered independent)
Unsubsidized Loan Limit $20,500
Total Loan Limit $20,500

Subsidized and Unsubsidized Aggregate Loan Limit

  Dependent Students (except students whose parents are unable to obtain PLUS Loans) Independent Undergraduate Students (and dependent undergraduate students whose parents are unable to obtain PLUS Loans) Independent Graduate or Professional Students
Subsidized Loan Limit $23,000 $23,000 $65,500
Unsubsidized Loan Limit $8,000 $34,500 $73,000
Total Loan Limit $31,000 $57,500 $138,500

Note: Sample rates have been extracted online, courtesy of FederalStudentAid

Should I take a Stafford Loan?

A stafford loan works as a great alternative against private student loans, because stafford loans have the option for a subsidized loan too. Here the government is in charge of paying the interest rate during tough times. It doesn’t sound much, but it could relieve hundreds of dollars off your loan.

If you also don’t have a couple thousand dollars just lying around for your education, then a stafford loan is your best bet. With relatively lower amounts of interest rate, you can get upfront payment to pay for the cost of tuition and boarding. However, do NOT ask for a bigger amount just because it’s a loan; keep in mind that the bigger the loan, the bigger monthly installments you will have to pay with interest. This could really shake up your monthly budget if you’re not careful.

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It is important to be practical while looking for a stafford loan, and if you have another source of aid, that would be great too. Make sure the installments you pay are timely and always regular.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.

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