Did You Know?
♦ Both undergraduate and graduate students may be eligible for Stafford loans.
♦ Subsidized Stafford loans are awarded on the basis of financial need.
Stafford loans are for undergraduate, graduate and professional students enrolled at least half-time. As of July 1, 2010, Federal Stafford Loans are made to students only through the Direct Loan program. Stafford loans may be subsidized or unsubsidized. A subsidized loan is awarded on the basis of financial need, and the government pays the interest before repayment begins or during authorized periods of deferment. This grace period “interest subsidy” was eliminated for Direct subsidized loans made on or after July 1, 2012 and before July 1, 2014.
Unsubsidized loans are not awarded on the basis of financial need, and borrowers are responsible for all interest. Interest payments for unsubsidized loans may be deferred while the borrower is in school, but any accrued interest is added to the principal of the loan (capitalized) when repayment begins. Borrowers can choose to pay interest while in school or during an authorized period of deferment to avoid capitalization. For loans made for periods of enrollment begining on or after July 1, 2012, graduate and professional students will no longer be eligible to receive subsidized loans. Loans made prior to this date are not affected by this change.
Loan Terms, Fees and Limits
Interest Rates for Older Loans:
Most Stafford loans taken out before July 2006 have variable rates that are capped at 8.25%. Interest rates were gradually reduced for new Stafford subsidized loans disbursed after 2007.
The rates are:
- 6% for loans first disbursed July 1, 2008 to July 1, 2009
- 5.6% for loans first disbursed July 1, 2009 to July 1, 2010
- 4.5% for loans first disbursed July 1, 2010 to July 1, 2011
- 3.4% for loans first disbursed July 1, 2011 to July 1, 2013.
Interest Rates for Newer Loans:
Congress passed a law in 2013 that made a number of important changes to student loan interest rates. The law ties borrowing rates to the financial markets. For the period from July 1, 2013 through June 30, 2014, undergraduates with both subsidized and unsubsidized Stafford loans were able to borrow at a 3.86% interest rate. The rates for graduate students is 5.41% and for PLUS loans, the rate during this period is now 6.41%. The Consumer Financial Protection estimates that the rates for new loans will jump starting July 1, 2014.
The Department of Education web site has more information about interest rates and terms. The Department also issued an announcement explaining the interest rate changes. The Project on Student Debt has an information sheet to help you understand the interest rates for federal student loans taken out July 1, 2013 through June 30, 2014.
The total amount of Stafford loans, including both subsidized and unsubsidized, that undergraduates can borrow is $31,000 for dependent students and $57,500 for independent students. Subsidized loans can be no more than $23,000 of this aggregate amount. The higher independent student limits also apply to dependent students whose parents are unable to borrow PLUS loans. The limits vary for each year of study, depending on the length of the program and the student’s year of study. There is more information on Stafford loan limits on the Department of Education’s web site and in the Department’s publication, Funding Your Education. (Also available in Spanish) This includes information about the higher limits for graduate students.
In 2005, Congress passed a law that reduced Stafford loan origination fees over time. Prior to this law, the fee limits were usually 4%. The fee for FFEL Stafford loans was eliminated as of July 1, 2010, but so was the FFEL program. For all Direct Subsidized and Unsubsidized Loans for which the disbursement date is on or after July 1, 2010, the origination fee dropped to 1%. The fees have increased slightly due to the sequester. The fees will vary depending on whether the loan was disbursed before July 1, 2013, after July 1, 2013 and before December 1, 2013, or after December 1, 2013 and before October 1, 2014.
Lenders are required to disclose the amount and method of calculating the origination fee. In addition, you should not be charged for any costs related to processing or handling applications or data required to determine your eligibility to borrow.