Stafford student loans are low fixed-rate loans provided by the federal government, regardless of the student’s financial situation, for undergraduate, graduate, trade, career, or technical school students attending school at least half-time. Stafford loans are the most common type of federal student loan and one of the lowest-cost ways to pay for college.
There are 2 types of Stafford loans; subsidized and unsubsidized.
- Subsidized loans interest is paid by the government for students with financial needs. Your school will review your FAFSA (Application for Federal Student Aid) to determine the amount you can borrow. You will not be charged interest while you are in school (at least half-time) and during the grace periods and deferment periods.
- Unsubsidized loans interest is paid by the students. You are not required to show financial need to receive this loan. Your school will determine the amount you can borrow. Interest accrues when the loan is issued. You can pay the interest while you are in school and during grace periods and deferment or forbearance periods. If you decide not to pay until you graduate the interest will accrue which will increase your loan balance when you graduate.
The Stafford loan borrowing limits are as based on whether a student is a dependent of his/her parents and his/her year in school. The Stafford loan borrowing limits are as follows:
- Dependent Students
- Freshman: $5,500 ($3,500 subsidized / $2,000 unsubsidized)
- Sophomore: $6,500 ($4,500 subsidized / $2,000 unsubsidized)
- Junior & Beyond: $7,500 ($5,500 subsidized / $2,000 unsubsidized)
- Independent Students
- Freshman: $9,500 ($3,500 subsidized / $6,000 unsubsidized)
- Sophomore: $10,500 ($4,500 subsidized / $6,000 unsubsidized)
- Junior & Beyond: $12,500 ($5,500 subsidized / $7,000 unsubsidized)
- Graduate / Professional: $20,500 ($8,500 subsidized / $12,000 unsubsidized)
- Lifetime Limits
- Undergraduate Dependent: $31,000 (Up to $23,000 may be subsidized)
- Undergraduate Independent: $57,500
- Graduate or Professional: 138,500 (Up to $65,000 may be subsidized)or $224,000 (for Health Professionals)
Dependent students who are not able to secure a PLUS loan may secure a Stafford loan up to the independent student loan amount.
Repayment of Stafford loans begins 6 months after the student completes one of the following:
- Graduates
- Drops-out
- Drops below half-time status
During the 6 months grace period, interest does not accrue onto subsidized loans; however, interest does accrue onto unsubsidized loans.
There are several repayment plans for Stafford loans which include:
- Even payments over 10 years
- Increasing payments over 10 years
- Even or increasing payments over 25 years (loans over $30,000)
- Income-sensitive payments
The benefits of the Stafford loan include:
- Low fixed interest rate as low as 4.5%.
- No payments are required as long as you are enrolled in college.
- No financial requirement or credit history to qualify.
- You may borrow up to $20,500 per year depending on degree status and years in school
To apply for a Stafford Loan you must complete the FAFSA (Free Application for Federal Student Aid) at http://www.fafsa.ed.gov/. Stafford loans are generally a part of your total award package, which may contain other types of financial aid.
When you receive your Stafford Loan you must complete a Master Promissory Note (MPN) which is a legal document stating that you promise to repay the loan with any accrued interest and fees. The MPN also states the terms and conditions of your loan.
Federal Perkins Student Loans
Upon approval of a Perkins loan, your school may pay you directly (by check) or apply the loan to your school charges. The loan is paid in at least 2 payments during the academic year.
How much can I borrow?
You may borrow up to $5,500 each year of undergraduate study with a total of $27,000. For graduate students, you may borrow up to $8,000 per year with a total of $60,000 which includes amounts borrowed as an undergraduate.
Is there a charge for a Perkins Student Loan?
There is no charge for a Perkins loan, however, payment is skipped, is late or you make less than a full payment, you may pay a late fee or collection costs.
When am I required to pay back a Perkins Student Loan?
If you attend school at least half-time, you have 9 months (grace period) after you graduate, drop out of school, or fall below half-time status to pay back the loan. If you are attending less than half-time, check with your school to determine your grace period.
How do I qualify for a Perkins Student Loan?
To qualify for a Perkins Loan you must prove substantial financial need by first completing a FAFSA (Free Application for Federal Student Aid). A student’s Expected Family Contribution (EFC) is then determined that must demonstrate a great financial need.
What are the benefits of a Perkins Student Loan?
The benefits to a Perkins Student Loan are as follows:
- A cosigner isn’t needed.
- You can have no credit or poor credit.
- The federal government pays the interest as long as you are at least a half-time student in a degree program. If the loan is ever in any type of deferment period, the government pays the interest. This can potentially save you thousands of dollars in interest.
- If you become a teacher you may qualify for loan cancellation. This means your loan is 100% canceled and paid for by the federal government.
Federal PLUS Student Loans
Federal PLUS Student Loans are loans designed to reduce your family’s immediate out-of-pocket college expense to nearly $0. PLUS loans are taken out by parents of dependent students to cover costs not covered by the student’s financial aid package.
PLUS loans have no dollar limit, no lifetime cap and are determined by subtracting the existing financial aid package (other loans, grants, scholarship) from the total education cost in that year. For example, if your total education cost is $15,000 and your financial aid package is $10,000, you will be eligible for a $5,000 PLUS loan.
PLUS loans are not subsidized by the federal government, have higher interest rates than Stafford Loans, and repayment starts while the student is still enrolled in college.
PLUS loans for undergraduate students are made to the parents and not to the students and unlike Stafford loans where the student is responsible to pay back the loan, are paid back by the parents. However, for graduate students, PLUS loans must be paid back by students.
There are two primary lending channels available for parents and students seeking Federal PLUS loans. They include:
- The William D. Ford Direct Loan Program makes Federal loans money via certain schools.
- The Federal Family Education Loan Program (FFEL) loans money via private lenders.
- The main difference between these two lending channels is the interest rate. The Direct Program charges are slightly less than the FFEL program, which is still noticeably higher than Stafford Loans.
Federal PLUS Loans offers several repayment plans which include:
- Even payments over 10 years
- Increasing payments over 10 years
- Even or increasing payments over 25 years (loans over $30,000)
- Income-sensitive payments
What is the interest rate of a Federal PLUS loan?
Are they any fees associated with a Federal PLUS loan?
The Federal Direct Loan Program (FDLP) charges a 4% origination fee for all new Federal PLUS loans created after 7/1/ 2010. The fee is added to the loan repayment amount and is not required immediately upon signing a Master Promissory Note (MPN).
How do I qualify for a Federal PLUS loan?
To qualify for a Federal PLUS loan, your parent must apply and pass a credit check. However, if your parent is unable to qualify, they may be able to receive a loan if a friend or relative who passes the credit check cosigns for the loan. This means the friend or relative agrees to repay the loan if the parent is unable or fails to do so. Graduate students may apply on their own with approval passed on a satisfactory credit score.
How do I apply for the Federal PLUS loan?
A parent or graduate student must submit a completed PLUS application to the school’s financial aid office. It is required that you have at least an average credit score and a non-delinquent history.
The FAFSA (Free Application for Federal Student Aid) form is not required to apply for the Federal PLUS student loan, however, many schools will require you to complete the FAFSA to process your other financial aid options, to determine the Federal PLUS loan amount.
To apply for the loan, check with your school’s financial aid off. You are able to complete the application online at www.studentloans.gov.
Student Consolidation Loans
Let’s face it, college students are graduating with a mountain of student loan debt. Tuition costs are increasing every year and it’s only expected to keep rising. According to the Federal Reserve, student loans (federal and private) totaled almost $830 billion in June 2010.
If your monthly student loans are becoming unmanageable causing you to miss payments or being late with payments then you are in danger of being in default. Defaulting on a federal student loan will cause numerous problems that you don’t want. Your credit will be damaged, your wages may be garnished, your loan may be given to a debt collection agency, your income taxed return may be seized, you could get sued by your lender, and you may be denied a professional license. This of course all depends on your state laws.
Before defaulting on a student loan, you may want to consider consolidating your loans. The main goal of consolidating your student loan is to combine all your loans into a single loan with a lower interest rate with one lower monthly payment that you pay to one lender. You will also have the option to pay back the loan over a longer period of time, thus reducing your monthly payment.
Loan consolidation is similar to refinancing a mortgage or taking a home equity loan to consolidate credit card debt or pay off other high-interest loans. Pretty much every kind of federal student loan qualifies for loan consolidation. These loans include Perkins, FFELP, FISL, NSL, HEAL, Health Professional Student Loans, Guaranteed Student Loans, and Direct loans. Loan consolidation is also available for private student loans. However, you should consolidate your federal student loan first if you also have a private loan. Defaulting on a federal student loan will impact you more than defaulting on a private student loan.
Another advantage of student loan consolidation is that there are no fees or costs associated with consolidation. If you find a company that wants to charge you fees, move on. Always shop around for the best deals.
What are the benefits of federal loan consolidation?
Some of the main benefits are as follows:
- Dealing with one lender and one monthly payment will make your debt easier to manage.
- You will be able to choose from multiple flexible payment options (standard, graduated, extended, income-contingent, income-based repayment plans – See more information on different payment options).
- You will be able to switch repayment plans at any time should your circumstances change.
- Reduced monthly payments to ease the strain of repayment.
Who is eligible for federal loan consolidation?
To qualify for federal consolidation loans, you must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment, or default status. If you are still in school you cannot be included in a Direct Consolidation Loan.
Can PLUS loans, Perkins Loans, Health Professional Loans be consolidated?
Yes
If one or more of my student loans is in default, do I qualify for student loan consolidation?
If you are in default, your loan may still qualify for consolidation.
Where do I find more information on how to consolidate my federal student loan?
- Federal Student Loan Debt
- Paying Off Your Student Loans
- Avoiding a Loan Default
- Student Loan Cancellation