Two types of unsubsidized and subsidized Stafford Loans available to students are the Federal Family Education Program, or FFEL, and the William D. Ford Federal Direct Loan, also referred to as the Direct Loan Program. Parents of a prospective college student can also take out an unsubsidized educational loan through the PLUS program to help finance their child's college education.
Federally subsidized student loans allow students who demonstrate financial need to borrow money and benefit from the government paying the interest fees on the loan while they attend school. The government will also pay interest on a subsidized student loan for six months after a student graduates or stops attending school. Federal unsubsidized student loans require that students either pay monthly interest fees on the loan or roll interest fees into the principal amount borrowed.
Subsidized federal loans allow students to borrow up to $3,500 during their first year of academic study, $4,500 during their second year of academic study and $5,500 for each subsequent year of undergraduate academic study. The total amount of subsidized and unsubsidized loans borrowed can not exceed $5,500 during a student's first undergraduate year of study, $6,500 during the student's second year of academic study and $7,500 during each of the student's final years of undergraduate study.
As of July 2009, the interest rate for unsubsidized student loans equaled 6.8 percent, and parents paid an interest rate of 7.9 percent on PLUS loans. Interest rates of federally subsidized student loans disbursed before July 1, 2010, ranged from 5.6 to 6.8 percent, depending on the loan disbursal date and whether the student was enrolled as an undergraduate or graduate student. Subsidized student loans disbursed between July 2010 and July 2011 will incur an interest rate of 4.5 percent, and subsidized loans disbursed between July 2011 and July 2012 will incur an interest rate of 3.4 percent.
Eligibility for federally funded student loan programs remains contingent upon students completing a Free Application for Federal Student Aid, or FAFSA form. This form calculates the contribution a student's family is expected to make toward a child's educational costs and determines eligibility for subsidized loan options.