A Stafford Loan is the most popular federal student loan. According to the College Board, for the 2010/2011 school year (the latest year for which statistics are available), more than $85 billion in Stafford Loans was handed out to students. Here are the highlights of this popular student loan.
Subsidized vs. Unsubsidized
There are two types of Stafford Loans—subsidized and unsubsidized. What’s the difference? With a subsidized loan, the government pays the interest that accrues on the loan while the student is in school, during any deferment periods, and for six months after graduation. With an unsubsidized loan, the student is responsible for paying the interest that accrues during these periods.
Subsidized Stafford Loans are available only to undergraduate students with financial need. Unsubsidized Stafford Loans are available to both undergraduates and graduate students, and aren’t based on financial need. Subsidized Stafford Loans are the more popular type.
Interest Rates
The interest rate a student will pay depends on whether the loan is subsidized or unsubsidized. For unsubsidized Stafford Loans, the interest rate on new loans is fixed at 6.8%. For subsidized Stafford Loans, the interest rate is fixed as follows:
- 3.4% for loans issued 7/1/11 through 6/30/13
- 4.5% for loans issued 7/1/10 through 6/30/11
- 5.6% for loans issued 7/1/09 through 6/30/10
- 6.0% for loans issued 7/1/08 through 6/30/09
- 6.8% for loans issued 7/1/06 through 6/30/08
Note: The 3.4% rate on subsidized Stafford Loans currently in effect is scheduled to increase to 6.8% on July 1, 2013.
For borrowers who have an older Stafford Loan–subsidized or unsubsidized–that was issued July 1, 1988, through June 30, 2006, the interest rate is variable. It is automatically adjusted each July (along with your monthly payment), and can’t exceed 8.25%.
In addition to interest charges, there is a 1% loan fee on all new subsidized and unsubsidized Stafford Loans.
Borrowing Limits
Stafford Loans have annual borrowing limits. Surprisingly, despite the steady increase in college costs, these limits have changed very little over the past decade. Here are the limits for dependent undergraduate students:
- 1st year: $5,500 (no more than $3,500 in subsidized loans)
- 2nd year: $6,500 (no more than $4,500 in subsidized loans)
- 3rd through 5th year: $7,500 per year (no more than $5,500 in subsidized loans)
- Total: $31,000
Here are the limits for graduate students:
- $20,500 per year (unsubsidized loans only)
- Total (includes undergraduate): $138,500
Applying
All Stafford Loans must be obtained directly from the federal government. (In the past, one could go through either the government or a private lender who participated in the government’s education loan program.) To apply for a Stafford Loan, students must complete the federal government’s financial aid application, the FAFSA. Family income and asset information provided on the FAFSA will be used to determine whether the student qualifies for a subsidized Stafford Loan, and other financial aid as well.
Stafford Loans are generally included as part of a student’s financial aid package. If this is your child’s first time receiving a Stafford Loan, he or she will be required to complete entrance counseling (to help understand his or her obligation to repay the loan) and sign a promissory note agreeing to the terms of the loan. For more information on the process, including dates and timelines, contact the financial aid office at the school your child is planning to attend.
If you have questions or need help putting together a college savings plan, contact the Experts at Henssler Financial:experts@henssler.com or 770-429-9166.
Disclosures
The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
