For many incoming graduate students, the financial aid picture is confusing, if not a little fuzzy, around the edges. Perhaps you've been in the workplace for years and are returning to graduate school. Maybe your parents took care of the whole financial thing when you were in college. Now you're climbing a steep learning curve. What's worse, you're going to be spending a lot of your own money. Unfortunately, grad students often miss the financial aid that is available to them.

Among your options, you no doubt will find that you're going to have to borrow, unless you're wealthy or a Ph.D. student in a well-funded field. The first reaction of some graduate students is to reach for their credit cards. The Stafford Loan, which they might vaguely remember from college days, somehow slips by them. Then as now, it is one of the best deals available for students who must take out loans. So it's time for a little brush up about how Stafford Loans work — they can save you bundles.

Stafford Loans come in two flavors
To refresh your memory, the Stafford Loan Program is a federally sponsored, low-interest loan offered through banks, credit unions, savings and loan institutions, and universities.

• The Subsidized Stafford Loan is awarded on the basis of your financial need, which is determined by the federal government as part of the need analysis done by completing the Free Application for Federal Student Aid (FAFSA). The government pays the interest on the loan while you are enrolled at least half-time in a graduate program.
• The Unsubsidized Stafford Loan means you pay the interest on the loan while still enrolled.

Take a look at these advantages:

• There's no credit check to determine if you qualify. If you are a U.S. citizen, enrolled half-time, and keep your grades up to satisfactory standards, you've got the loan.
• Compared to other loan programs, it's low cost.
• The loan funds come directly to you and can be used to pay for tuition, fees, and room and board.
• You're getting the best terms available.
• Normal payback of Stafford Loans is ten years, but you can extend it to 30 years through consolidation.
• You can defer a loan a year at a time up to a total of three years.
• If your income is low when you first get out of graduate school, you can pay a percentage of what your income is until you're on your feet, depending on your circumstances.
• The interest is tax deductible, depending on your income.
• Half-time students can still borrow the full amount given approval by the graduate program.

Interest facts and figures
You may be shocked at how much graduate school costs, but you'll be pleased to know that you can borrow up to $20,500 each academic year. At the end of your graduate studies, the total amount you can accrue is $138,500. This includes any Stafford Loans you took out for college. Only $65,000 of the grand total can be in subsidized loans. Historically, the interest rate changed each year due to variable interest rates, but for new loans after July 1, 2006, the interest rate is fixed at 6.8 percent (which is higher than what we've seen in recent years, but is still a good deal as far as borrowing money goes!). 

The time period that you are charged interest depends on what kind of loan you have. With subsidized Stafford Loans, you won't be charged interest while you're enrolled at least half-time in school. The same is true during grace periods or times that your interest is deferred. With unsubsidized loans, interest starts building the first day the loan is disbursed until you've paid the loan in full, even during grace and deferment periods.

Grace periods also differ according to the type of Stafford Loan you get. For a subsidized loan, interest is not charged, and you don't have to pay on the principal during a grace period. For the unsubsidized loan, interest will be charged during grace periods, but you don't have to pay on the principal. Six months after you graduate, leave school, or are attending less than half-time, the repayment clock starts ticking. Unless you're on active duty in the military, you must begin paying off the loan at that time.

Unforeseen circumstances
As everyone knows, things happen unexpectedly at times. At some future point you might need to postpone repayment of the loan. Stafford Loans cut you some slack under certain circumstances by giving you a deferment or forbearance on your loan. This lets you temporarily stop payments. Again, subsidized Stafford Loans don't charge you interest during a deferment, while unsubsidized loans do. Forbearance on your loan gives you a limited and specified period of time to recover if you are in poor health, have personal problems, or are a medical and dental student in an internship or residency program. In forbearance, you are charged interest for both types of Stafford loans.

Applying for a loan
In order to get a subsidized loan, you have to demonstrate financial need. As you might have done in college, you'll need to fill out the Free Application for Federal Financial Aid (FAFSA) form and go through the Federal Methodology need analysis. Submit it as soon as possible after January 1 of the year in which you’ll enroll.