Stafford and Direct Stafford Loans
Subsidized versus Unsubsidized Stafford Loan
How much may I borrow?
Stafford Loan Limits
How do I apply?
What happens when the loan enters repayment?

A Stafford Loan is the most common type of loan offered to students. As a Federal Loan Program, both Stafford and Direct Stafford Loans have the same interest rates, loan maximums, deferments, and cancellation benefits. The difference is the source of funds for the loans. A Stafford Loan may be borrowed from a commercial lender, such as a bank or credit union. A Direct Loan is borrowed directly from the U.S. Department of Education. The college determines which funding source they will use for the loan program.

Subsidized versus Unsubsidized Stafford Loan
The Stafford Loan is a variable interest rate loan and changes every year on July 1. The interest rate is capped at 8.25% so you will never be charged more than 8.25% interest. The rate for the 2004-2005 (July 1, 2004 to June 30, 2005) academic year is 2.77% while in college and 3.37% while you are in repayment.

If you qualify for a need-based Subsidized Stafford Loan, the federal government pays the interest while you are enrolled in college, during your grace period, and during deferment periods. If you qualify, the Subsidized Stafford Loan is a great deal because you don't pay interest until your loan enters repayment.

There is also an Unsubsidized Stafford Loan that is not based on financial need. You may be eligible, regardless of your family income. You are responsible for paying the interest that accrues while you are in college, during your grace period, and during deferment periods. You may choose to have your interest capitalized or added to your principal, if you do not wish to pay during college, your grace period, and periods of deferment. Whenever possible, you will want to pay the interest on your loan. Otherwise, you will end up with a larger principal balance on which more interest will accrue. This means you will pay more over the life of the loan.

How much may I borrow?
The chart provided below gives the maximum amounts a student may borrow each year through the Stafford Loan Program. For an undergraduate degree, a student may borrow a maximum of $23,000.

What does a $23,000 loan look like when it enters repayment?
Loan Repayment Example: If you borrowed the maximum of $23,000, the interest rate was 8.25% for the life of the loan, and you took the full 10 years to repay, your estimated monthly loan payments would be $285 and you would pay more than $10,000 in interest. Your total cost for the $23,000 loan would be over $33,000.

Use our loan repayment calculator to determine your monthly loan payment.

How do I apply?
To apply for a Stafford Loan, you must complete the FAFSA to determine eligibility for a loan. If you are eligible, your financial aid office will direct you to complete a Master Promissory Note (MPN). By signing the promissory note, you are agreeing to repay the loan. Take some time to review and understand your rights and responsibilities before you sign the promissory note. You are making a commitment that will impact you for at least 10 years (the standard repayment period of a Stafford Loan).

As part of the promissory note, you may be asked to select a student loan lender. Usually, the financial aid office provides a list of preferred lenders. Select your lender carefully because it could save you thousands of dollars in repayment costs. Click here for more information on how to choose a lender.

When the MPN is received, the funds will be scheduled for disbursement. The proceeds of the loan, less the fee, will be sent to the college to be either credited to your account or released to you directly. There is up to a 4 percent fee that is deducted from the loan proceeds. However, depending on the lender of the loan, these fees may be paid by the lender. See our section on choosing a lender for more information on how to reduce the costs of your loan.

Check with the financial aid office to find out the disbursement date of your loan. Usually, the first loan disbursement occurs within the first 30 days of the academic period.

What happens when the loan enters repayment?
A Stafford Loan enters repayments 6 months after you graduate, leave college, or drop below half-time enrollment. The standard repayment period is 10 years and the minimum monthly payment is $50. If you are having difficulty making your payments, deferment and forbearance options are available. Basically, deferments and forbearances are ways to temporarily suspend or lower your monthly payments. Check with the lender of your loan for details.