According to StaffordLoan.com, Stafford loans are "federal student loans made available to college and university students to supplement scholarships, loans, and work-study." Stafford loans can be subsidized by the U.S. government, which pays the interest while the borrower is in school, according to StaffordLoan.com and FinAid.org. There are two types of Stafford loans: the Federal Family Education Loan Program (FFELP) and Federal Direct Student Loan Program. The Federal Family Education Loan Program is a "loan provided by private lenders, such as banks and credit unions" guaranteed against default by the U.S. government. The Federal Direct Student Loan Program is a loan provided directly by the U.S. government to students and their parents, according to FinAid.org.
Stafford loans offer a low fixed interest rate that remains fixed for the life of the loan until it is repaid. Additional benefits include no credit check, no payments until graduation and increased borrowing limits of up to $2,000 more. Furthermore, subsidized Stafford Loans are eligible for federal loan consolidation and the interest is tax deductible, according to StaffordLoan.com.
An applicant must be a U.S. citizen, a U.S. permanent resident or an eligible noncitizen enrolled in a school program that participates in the Federal Family Education Loan Program. Additionally, applicants must submit a Free Application for Federal Student Aid (FAFSA), meet financial needs as determined by the applicant's school and enroll or plan to enroll at least half time in school, according to StaffordLoan.com.
Stafford loans repayment plans offer several flexible payment options to fit any budget. The standard repayment plan is a fixed amount paid each month based on the borrower's principle and interest. Graduated repayment offers lower payments at the beginning of repayment but payments increase over time. Income-sensitive repayment offers monthly payments based on yearly income and loan amount. Extended repayment offers the choice of fixed or graduated payments for up to 25 years for loans more than $30,000. Depending on individual circumstances, borrowers who re-enroll in school or have financial hardships can also take advantage of deferment or forbearance options, according to StaffordLoan.com.
The interest rate for a subsidized Stafford loan for the 2009-2010 school year is 5.6 percent. Interest rates are fixed and can be deferred while the borrower is in school. However, the borrower can also choose to pay the interest every month while enrolled in school. Any deferred interest will be capitalized and added to the outstanding balance on the loan. Stafford loans disbursed between July 1, 2009 and June 30, 2010 have up to a 1.5 percent fee, with 0.5 percent federal origination fee and 1 percent federal default fee, according to StaffordLoan.com.
Limits for subsidized Stafford loans depend on whether the borrower files as an independent or dependent student. Dependent students rely on their parents for all or most of their income and expenses and are claimed as dependents on their parents' tax returns. Limits also differ by school program and year in school. For example, a first-year/freshman undergraduate would receive less per year in subsidized loans than a third-year/junior undergraduate or a student enrolled in a graduate or professional program, according to FinAid.org.