Federal Stafford Loans

Stafford Loans are the most common source of federal student loans. There are two types of Stafford loans: the subsidized Stafford Loan and the unsubsidized Stafford loan.

What’s the difference between a subsidized and an unsubsidized Stafford Loan?

A subsidized Stafford loan is available to undergraduate students based on their demonstrated financial need. The loan is called “subsidized” because the government subsidizes your interest payments while you are in school, for a grace period of six months thereafter and during any other periods of deferment (if, for example, you go back to graduate school.)

Unsubsidized Stafford Loans do not consider financial need. Interest begins accruing from the moment of disbursement (when the check is issued to you). Although repayment of an unsubsidized Stafford Loan is deferred while you are in college, you will be responsible for repaying the full amount of interest, including that which accrues while you are in school. With an unsubsidized loan, you have the option to begin making repayments while you are still in school.

How much can I borrow from a Stafford Loan?

When you receive your financial aid award letter from your college, it will outline how much you are entitled to borrow from the (subsidized) Stafford loan.

The total amount is a function of your financial need (determined by the FAFSA form), whether your parents still claim you as a dependent on their annual tax returns, and your year in school. As a rule, independent students in their third and forth year can borrow the most.

The breakdown for the 2016 – 2017 school year is as follows:

1st Year

Dependent Student: $5,500 (of which $3,500 may be subsidized)
Independent Student: $9,500 (of which $3,500 may be subsidized)

2nd Year

Dependent Student: $6,500 (of which $4,500 may be subsidized)
Independent Student: $10,500 (of which $4,500 be subsidized)

3rd & 4th Year

Dependent Student: $7,500 (of which $5,500 may be subsidized)
Independent Student: $12,500 (of which $5,500 may be subsidized)

Maximum Allowable Debt at Graduation

Dependent Student: $31,000 ($23,000 subsidized)
Independent Student: $57,500 ($23,000 subsidized)

What is the interest rate on a Stafford Loan?

Both subsidized and unsubsidized Stafford Loans feature low, fixed interest rates. The current rate for the 2016-2017 school year is 4.29% (graduate students pay 5.84%).
That rate will go down each year for the next three years – to as low as 3.40% in 2011-2012. In 2012, it is set to bump back up to 6.80%.

What are my options for repaying my Stafford Loan?

The standard repayment term for a Stafford Loan is a fixed monthly payment for 10 years, which may be extended for deferment (if you go back to school or encounter financial difficulties). Your lender may also offer you one of the following alternative plans:

  • Graduated Repayment Plan, which allows you to make lower payments when you first leave school – when your income is ostensibly lower. Your monthly payment increases toward the end of the repayment term. Depending on the spread of payments, your first few years of repayment may only cover interest on your loan.
  • Income-Sensitive Repayment Plan, which considers your yearly income and adjusts your monthly payment accordingly.
  • Extended Repayment Plan, which is for borrowers with more than $30,000 in loans. You can chose either fixed or graduated payments over up to 25 years.

How do I know if I’m eligible for a Stafford Loan?

To be eligible for a Stafford Loan, you must be enrolled in school at least half-time. You must also have completed a FAFSA (Free Application for Federal Student Aid.)

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