Stafford Loans

To begin this guide to understanding Stafford loans, we wanted to discuss what this type of loan involves.  To help you achieve higher education through an accredited educational institution within the United States, loans of this kind can be beneficial.  Stafford loans were named after Robert T. Stafford, in honor of the Republican Senator from Vermont.  Stafford was dedicated to higher education and to guarantee the lender would be repaid should a student default, the initial Federal Guaranteed Student Loan program was formally changed in 1988 to the Robert T. Stafford Student Loan Program.

Unlike student loans from private lenders (banks, credit unions, and other financial institutions), Stafford loans are backed by the United States Government.  While this type of loan has a number of advantages over other loans, the one that students find most appealing is the lower interest rate.  However, to qualify for a Stafford loan you would be required to meet strict criteria.  In addition, the amount of money associated with a Stafford loan would be somewhat limited.

To apply for a Stafford loan an FAFSA application would need to be completed.  In addition to this document, more than likely a few other financial aid forms would need to be executed.  From there, it would be determined whether you are an independent or dependent student, which would affect steps within the process but also the amount of money you would ultimately be able to secure.

After you have been approved for a Stafford loan, you would not start the repayment process while still in school, whether on a part-time or full-time basis, which is called an “in-school deferment”.  In addition to this, payments on the loan would not start for a full six months after graduating, withdrawing from college or changing status to less than half-time, which would be based on the number of credit hours being taken.  This six-month period is known as the “grace period”, which is intended to give you time to become established in a career and thereby have steady income.

Another fact we wanted to address in this overview of Stafford loans is that there are both subsidized and unsubsidized options.

•    Subsidized Loan – The amount of money would be based on the level of financial aid needed.  In this case, interest attached to the loan would actually be paid by the Federal Government but only while you are still attending school but also during that six-month grace period, as well as during the authorized deferment time-frame.

•    Unsubsidized Loan – In this scenario, accrued interest would be your responsibility but for a Stafford loan such as this, the interest could be deferred during the enrollment phase.  In addition, any interest not paid would be deferred until you graduate, at which time it would be added to the principal balance of the loan.

The last factor we wanted to cover in this overview of Stafford loans has to do with interest.  The amount of interest would be based on the date the loan money was disbursed, which means it would vary.  If you were to secure a variable loan, interest would be established on a 91-day Treasury bill annually.  For this, the first date would begin on the last Monday in May, which would then go into effect on July 1 of the following year.

If you were able to secure a Stafford loan the benefits would be obvious.  In summary, interest is low, often starting at just 4.50%.  In addition, with this type of financial aid the amount of money secured would go up to $20,500 a year, which is much greater than money borrowed from a private lender.  Of course, the actual amount of the Stafford loan would vary based on the number of years you plan to attend college, as well as your degree status.

Another benefit of a Stafford loan is that would have the opportunity to remain focused on coursework since no payments would be required until you graduate or leave college.  Finally, because a Stafford loan is not based on credit, qualifying would be much easier than trying to get money from a private financial institution.

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