Federal Stafford Loans

Schools generally participate in either the Federal Family Education Loan (FFEL) Program or the William D. Ford Federal Direct Loan (Direct Loan) Program, although some schools participate in both programs. Under the Direct Loan Program, the funds for your loan come from the federal government and are delivered to you through your school. Funds for your FFEL will come from a bank, credit union, or other lender that participates in the program. Both programs offer Stafford Loans for students.

The terms and conditions of both loans are similar. The amounts you may borrow are the same whether you get a Direct Stafford Loan or a FFEL Stafford Loan. The major differences between the two programs are the source of the loan funds and certain repayment provisions.

How can I get a FFEL or Direct Loan?

For either type of loan, you must fill out a FAFSA. After your FAFSA is processed, your school will review the results and will inform you about your loan eligibility. You’ll also have to sign a promissory note, which is a binding legal document that lists the conditions under which you’re borrowing and the terms under which you agree to pay back the loan.

If you have financial need remaining after your EFC, the amount of any Federal Pell Grant funds you’re eligible for, and aid from other sources are subtracted from your cost of attendance, you can borrow a “subsidized” FFEL or Direct Loan to cover some or all of that remaining need. If you’re eligible for a subsidized loan, the government will pay the interest while you’re in school, for the first six months after you leave school, and when you qualify to have your payments deferred.

Depending on your financial need, you may borrow subsidized money for an amount up to the annual loan borrowing limit for your year in school. (Annual loan limits are listed below.) You might also be able to borrow loan funds beyond your subsidized loan amount or even if you don’t have demonstrated financial need. In that case, you’d receive an unsubsidized loan. Your school will subtract the total amount of your other financial aid, if any, from your cost of attendance to determine the amount for an unsubsidized loan. Unlike a subsidized loan, you’re responsible for the interest from the time the unsubsidized loan is disbursed until it’s paid in full. You can choose to pay the interest or allow it to accumulate and be capitalized (that is, added to the principal amount of your loan).

You can receive a subsidized loan and an unsubsidized loan for the same enrollment period as long as the loans don’t exceed the annual loan limit.

So, how will I get the loan money?

For both the Direct Loan and FFEL programs, you’ll be paid through your school in at least two installments. No installment may exceed one-half of your loan amount. Your loan money must first be applied to pay for tuition and fees, room and board, and other school charges. If loan money remains, you’ll receive the funds by check or in cash, unless you give the school written authorization to hold the funds until later in the enrollment period.

If you’re a first-year undergraduate student and a first-time borrower, your school cannot disburse your first payment until 30 days after the first day of your enrollment period. This practice ensures that you won’t have a loan to repay if you don’t begin classes or if you withdraw during the first 30 days of classes.

How much can I borrow?

If you’re a dependent undergraduate student, each year you can borrow up to

  • $2,625 if you’re a first-year student enrolled in a program of study that is at least a full academic year;
  • $3,500 if you’ve completed your first year of study and the remainder of your program is at least a full academic year;
  • $5,500 if you’ve completed two years of study and the remainder of your program is at least a full academic year.

If you’re an independent undergraduate student or a dependent student whose parents have applied and were unable to get a PLUS Loan (a parent loan), each year you can borrow up to

  • $6,625 if you’re a first-year student enrolled in a program of study that is at least a full academic year (at least $4,000 of this amount must be in unsubsidized loans);
  • $7,500 if you’ve completed your first year of study and the remainder of your program is at least a full academic year (at least $4,000 of this amount must be in unsubsidized loans);
  • $10,500 if you’ve completed two years of study and the remainder of your program is at least a full academic year (at least $5,000 of this amount must be in unsubsidized loans).

These amounts are the maximum yearly amounts you can borrow in both subsidized and unsubsidized FFELs or Direct Loans, individually or in combination. Because you can’t borrow more than your cost of attendance minus both the amount of any Pell Grant you’re eligible for and any other financial aid you’ll get, you might receive less than the annual maximum amounts.

What's the interest rate?

The interest rate is variable (adjusted annually) but does not exceed 8.25 percent. For July 1, 2002 to June 30, 2003, the interest rate for loans in repayment was 4.06 percent. The interest rate is adjusted each year on July 1. You’ll be notified of interest rate changes throughout the life of your loan.

When do I pay back the loan?

After you graduate, leave school, or drop below half-time enrollment, you’ll have a six-month grace period before you begin repayment. During this period, you’ll receive repayment information, and you’ll be notified of your first payment due date. You’re responsible for beginning repayment on time, even if you don’t receive this information, however. Payments are usually due monthly.

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