What is a Federal Stafford Loan?
Melissa Hart Online-Degrees-Today.com Writer

Stafford loans are low-interest loans made to undergraduate and graduate students attending accredited schools at least halftime. Eligible expenses covered by Stafford loans include tuition and fees, room and board, books and supplies, transportation, and living allowance. Both subsidized (need based) and unsubsidized (non-need based) loans are offered. Stafford loans are available from two sources. Your college financial aid officer (FAO) will tell you which applies to you.

Federal Family Education Loan Program, known as FFELP loans are made with private funds and federally insured. Private financial institutions, such as banks, process loan applications and provide customer service. Your financial aid officer can make loan forms available to you as well as recommend a lender. You might prefer to apply for a loan through a participating local financial institution.

For colleges participating in Federal Direct Loan Program (FDLP), the loans are made directly from the federal government. Federal contractors are responsible for processing your loan application and provide customer service. Your FAO will tell you where to obtain and send any loan forms. While the college financial aid representative can provide information about applying for a Stafford loan, it is your responsibility to complete Stafford loan forms and follow the college's instructions on the application process.

If a loan is needed to fund your education, there are two types of Stafford loans - subsidized and unsubsidized. With a subsidized loan, the federal government pays the interest while you are in school at least half time and during authorized deferment and grace periods. You will be responsible for the interest at repayment. You may qualify for a subsidized Stafford loan if you demonstrate financial need. This need is calculated based on the information you provided on your Free Application for Federal Student Aid (FAFSA), along with the cost of school and other financial aid.

Unsubsidized loans, you are responsible for interest as soon as the loan is taken out. You may either pay the interest as it accrues or defer it until after graduation. Deferred interest is capitalized, or added to the original balance of the loan. If you do not qualify for subsidized Stafford loans, or need more money than the subsidized program can offer, you may qualify for an unsubsidized Stafford loan, regardless of your family income. Except for the in-school interest provisions, both subsidized and unsubsidized Stafford loans have similar terms.

Interest Rates on these loans will vary depending on when you originally got the loan. This interest rate is subject to change July 1 of every year as well. The federal government sets the maximum interest rate, which is currently capped at 8.25%.

You can contact your financial aid officer to learn. Contact your financial aid officer to learn what interest rate will apply to your Stafford Loan.

You receive a six-month grace period before initial repayment on Stafford loans after you graduate or drop below half time study – or dropping out. There are many repayment terms are available, including a graduated payment where the payment increases over time, and income sensitive options. You may be eligible to postpone payments through deferment or forbearance. Your financial aid officer will provide details on these options before your loan enters repayment.

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