Stafford loans from the federal government are available to students who are engaged in undergraduate, graduate, or professional school studies and are enrolled on at least a half-time basis. Undergraduate students must be enrolled for six or more credit or semester hours. Eligible students may apply for Stafford loans by completing what is known as the Free Application for Federal Student Aid (FAFSA), which may be obtained at no charge from college or university financial aid offices or online at the Free Application for Federal Student Aid government organization Web site.
Financial aid is available to both dependent and independent undergraduate students whose dependency status is determined by information that they provide on their Free Application for Federal Student Aid forms. The limit on the amount of money students may borrow varies according to their grade level and dependency status. The law does not require credit checks when students apply for loans, because individuals are generally eligible to receive the loans regardless of their credit scores or history of financial problems. Stafford loans can be direct or indirect in nature. Direct loans are those that are administered by officials at institutions chosen by borrowers, while indirect loans are handled by staff members at lending organizations such as banks.
There are two types of Stafford loans, subsidized and unsubsidized. Both types of loans are guaranteed by the U.S. Department of Education. Subsidized loans are awarded on the basis of demonstrated financial need. If students qualify for a loan, the federal government pays the interest on (subsidizes) the loans while the students are attending school as well as for a six-month grace period thereafter. The grace period commences when students graduate, leave school, or are enrolled less than half time. Interest does not accrue on a loan until the repayment period begins. No payments are due on loans until six months after graduation or until borrowers become less-than-half-time students. For example, students who borrow $10,000 to help finance their education would owe $10,000 after graduation. At one time, subsidized loans were the only type of Stafford loans available.
Unsubsidized Stafford loans are now available to students regardless of their or their parents’ incomes, and these loans are not awarded on the basis of financial need. For unsubsidized Stafford loans, the government does not pay the interest on the loans; students are responsible for the payment of interest that accrues on the loans from the time the money is disbursed to them until they repay their loan debt in full. For example, a student who borrowed $10,000 on entering school would, on graduation, owe $10,000 plus interest that accrued while he or she was in school. The interest would be computed and added to the total loan amount, and after the grace period expired, the student would have to begin making payments on the principal plus the accumulated interest. To continue with the same example, if the amount of interest accrued was $1,000, then the student would owe a total of $11,000. Students have the option of making payments while they are still in school to avoid the accrued interest.
The interest rates on Stafford loans vary according to the date when the loans were disbursed to the students. Loans disbursed prior to July 1, 2006, have variable interest rates, while those that were initially disbursed on or after July 1, 2006, have a fixed interest rate of 6.8 percent. As noted earlier, loans may be financed by a bank, another private lender, or agencies of the federal government. The amount of time that students have to repay loans can range from 10 to 25 years, depending on the amount that they owe and the type of repayment plans that they negotiated with their lending institutions. Under specified circumstances, individuals may seek to defer the repayment of their loans or to have them discharged if they suffer from disabilities; if they experience economic hardship (for example, if they successfully declare bankruptcy); or if they are employed as teachers in school systems that serve low-income students and offer such relief as an incentive in return for serving a fixed period of time.
See also Loans and Federal Aid
Cloud, R. C. (2006). Offsetting Social Security benefits to repay student loans: Pay us now or pay us later. Education Law Reporter, 208, 11–21.
Cloud, R. C. (2006). When does repaying a student loan become an undue hardship? Education Law Reporter, 185, 783–804.
Augustus F. Hawkins–Robert T. Stafford Elementary and Secondary School Improvement Amendments of 1988, Pub. L. No. 100-297.
Federal Student Loan Programs, http://www.staffordloan.com
Free Application for Federal Student Aid, http://www.fafsa.ed.gov
Higher Education Act of 1965, Pub. L. No. 89-329, 20 U.S.C. §§ 1001 et seq.
Higher Education Amendments of 1988, Pub. L. No. 100-369, 20 U.S.C. §§ 1071 et seq.