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- Stafford loans are federal student loan that are either subsidized or unsubsidized
- While the program under which Stafford loans ended in 2010, the name is still commonly used to refer to federal student loans.
- The amount you can borrow varies based on your individual financial situation.
Stafford loan is the name the Department of Education once used for its subsidized and unsubsidized federal student loans. Although such loans have been renamed, the term Stafford loan is still commonly used to refer to them.
What is a Stafford loan?
Stafford loans were issued under the Federal Family Education Loan Program (FFELP), which ended in 2010. If you are applying for a federal student loan today, there’s a good likelihood you’ll come across someone referring to it as a Stafford loan. However, they are now officially referred to as Federal Direct Loans.
Federal Direct Loans are low-interest loans issued by the federal government to eligible students. They can be used to help cover the cost of higher education at a four-year college, community college, trade school, career school, or technical school.
“The interest rates are fixed and are generally lower than the interest rates on private student loans,” says Mark Kantrowitz, a college planning expert and author of “How to Appeal for More College Financial Aid.“
“Federal student loans also have better repayment terms than private student loans,” Kantrowitz says.
Types of Stafford loans
Federal student loans can be broken down into two categories: subsidized and unsubsidized.
Subsidized federal student loans are available only to undergraduate students with demonstrated financial need. While in school, these loans won’t accrue interest because the Department of Education covers interest charges. After you graduate, you’ll have a six month grace period before you are responsible for interest charges.
Unsubsidized federal student loans are available to any undergraduate or graduate student. During school, these loans will accrue interest. You have the option to make interest payments while in school or defer interest payments until after graduation.
The amount you can borrow through each loan type varies based on your financial situation. With that, students can borrow up to their subsidized limit before tapping into unsubsidized loan options to minimize interest payments. But students face aggregate loan limits across both subsidized and unsubsidized loans.
How Stafford loans work
Federal student loans may offer a viable way to pay for your higher education costs. Below is a closer look at how these work.
Funding your education
If you are interested in taking out a Direct Loan, the process starts by filling out the Federal Application for Student Aid, or FAFSA. With this information, your school will prepare and send you a financial aid offer. In some cases, this will include Direct federal student loans, which may be subsidized, unsubsidized, or both. Your school will provide more information on how to accept some or all of the offered loans.
Federal Direct Loans come with loan limits, which vary based on your academic year and dependency status. In general, independent students can borrow more than dependent students. Additionally, students who are further along in their studies are often able to borrow more per year. But as of 2023, the aggregate limit across all years of study is $31,000, with no more than $23,000 in subsidized loans.
In general, Direct Loans offer significantly lower interest rates than private student loans. As of the 2023-2024 school year, the interest rate for undergraduates is 5.50%. Interest will accrue differently for borrowers with subsidized and unsubsidized loans.
Repayment
Usually you will be expected to begin to repay your student loan debt within six months after graduation, leaving school, or dropping below half-time enrollment. Repayment terms vary from 10 to 25 years, based on the repayment strategy you choose. If you run into difficulty repaying your loan, you might be able to tap into deferment or forbearance options.
Federal student loans come with some loan forgiveness opportunities. For example, the Public Service Loan Forgiveness (PSLF) program offers a way to obtain student loan forgiveness if you work full-time for an eligible employer and make 120 qualifying payments. Eligible employers include government organizations and non-profit organizations.
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Stafford loan frequently asked questions
Direct unsubsidized loans are available to both undergraduate and graduate students. But Direct subsidized loans are only available for undergraduate students.
Depending on your situation, you might be able to borrow both subsidized and unsubsidized Direct Loans. However, there are aggregate limits across both types of loans.
You don’t need a co-signer for your federal student loans.
Federal Direct Loans are eligible for income-driven repayment plans. If you qualify for an income-driven repayment plan, that might help you make your student loan payments more manageable.
If you cannot make your Stafford loan payments, you may eventually default on the loan. If possible, reach out to your loan servicer to explore your options before you are facing default. For example, you might be able to lower your payments through an income-driven repayment plan or tap into a forbearance temporarily.
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