A Stafford Loan was one of three types of loans made available to students by the federal government. There are several forms of financial aid available to students and not all are loans, but a Stafford loan was money borrowed by the student, and repayment is necessary; except under certain conditions.
Note: As a result of the Health Care and Education Reconciliation Act of 2010, FFEL Stafford Loans are no longer made by private lenders. Instead, all new federal student loans come directly from the U.S. Department of Education under the Direct Loan Program. This article preserves information for former students in repayment.
Like many other federal loan programs, to qualify for a Stafford loan, the student or a family member fills out the Free Application for Federal Student Aid or FAFSA. To complete this application, certain records of a family's wealth are needed, including income tax returns, bank statements, mortgage records, and statements of stocks, bonds, and other investment holdings.
After completing the application, the student is sent a Student Aid Report, or SAR, which restates the application information and contains the Expected Family Contribution. The SAR is used by the financial aid office of a school to put together an Award Letter.
The Award Letter outlines the financial aid the college or university is willing to package for the student as well as the forms of aid. If granted a Stafford loan, the student will need to complete a promissory note, which is a legal document promising repayment of the loan.
Sometimes referred to simply as a Direct Loan, the William D. Ford Direct Stafford Loan Program offered students low interest loans directly from the federal government.
A Direct Loan offers four flexible repayment plans, including:
As mentioned earlier, the Health Care and Education Reconciliation Act of 2010 eliminated Stafford Loans made by private lenders. Instead, all new federal student loans come directly from the U.S. Department of Education under the Direct Loan Program.
Direct Stafford Loans were targeted to both undergraduate and graduate students. In addition, the loans to the student took one of two forms:
To receive financial aid from the federal government, generally, the student must have a Social Security number, be enrolled or accepted for enrollment as a regular student working toward a degree or certificate in an eligible program. The student must also possess a high school diploma, or a General Education Development (GED) Certificate.
The limits for a Stafford Loan depended on the student's status, and whether or not they were a dependent student:
|Dependent Undergraduate||Independent Undergraduate|
|1st Year||$5,500||$9,500 - No more than $3,500 in subsidized loans.|
|2nd Year||$6,500||$10,500 - No more than $4,500 in subsidized loans.|
|3rd and 4th Years||$7,500||$12,500 - No more than $5,500 in subsidized loans|
For Stafford loans disbursed beginning July 1, 2017, the interest rate is fixed at 4.45%. Loans disbursed before July 1, 2006 offered a variable rate of interest which is adjusted annually on July 1, and capped at 8.25%. The current rate of interest on these variable rate loans through June 30, 2017 is 2.47%.
For Stafford loans first disbursed between July 1, 2016 and June 30, 2017, the fees can be up to 4.00%. This includes a 2.00% federal origination fee plus a 2.00% federal default fee. There are many lenders that work with Sallie Mae to pay all or a portion of these loan expenses.
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