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If you’re paying for your higher education with a loan from the government, chances are you have a Federal Stafford Loan. They’re the most common type of student loan offered by the Department of Education, the agency responsible for lending the government’s money to students.

If you’re one of the more than 32 million Americans who has a Stafford Loan currently — or are considering joining their ranks — read on to learn more about what exactly Stafford student loans are, and how exactly they can work for you.

What is a Federal Stafford Loan?

Stafford Loans — also called Direct Loans, and we’ll use those names interchangeably in this article — typically refer to subsidized and unsubsidized loans that the federal government provides to eligible students to help them cover the cost of higher education at four-year colleges and universities, community colleges, and vocational, or technical schools.

They were named after Vermont Senator Robert Stafford, a champion of American education. Since 2010, Stafford Loans have been administered by the William D. Ford Federal Direct Loan Program.

Several factors make Stafford Loans preferable to loans from banks or financial institutions: they come with lower interest rates, are easier to obtain, and have flexible repayment terms and options intended to ensure affordable monthly payments.

It’s usually best to turn to scholarships, grants, work-study opportunities, and other similar options before taking out loans to pay for your education. However, if you must turn to loans, you should try to take out federal student loans before borrowing from a bank or other private lender to pay for your education.

Subsidized Stafford loans vs. Unsubsidized Stafford Loans

The key distinction between subsidized and unsubsidized Stafford Loans is that the federal government pays (or “subsidizes”) interest accrued on the subsidized version during certain periods:

  • While the borrower is in school at least half-time, as defined by that school. Usually, that means a student’s enrolled in at least six credits of classes per semester when twelve is considered full-time
  • While the loan is in deferment, which is a “pause” borrowers can put on loan repayments when they’re unemployed or demonstrate financial hardship in other approved ways
  • During a “grace period” of the first six months after the borrower leaves school. Note, however, that if you received a subsidized Stafford Loan that was first disbursed between July 1, 2012, and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period. If you choose not to pay the interest that accrues during your grace period, the interest will be added to your principal balance

Unsubsidized loans accrue interest from the date of the first disbursement, and borrowers must pay all of it.

If you’re offered both types, it’s typically best to opt for the subsidized loan offer first. Since you’re responsible for less interest, you’ll owe less money overall.

Who’s eligible for subsidized and unsubsidized Stafford Loans?

To be eligible to take out either type of loan, you must be enrolled at least half-time at a school that participates in the Direct Loan Program (a school’s financial aid office will tell you if it does). Generally, you must also be in a program that awards a degree or certificate from the school.

But there are important differences between the two loan types. While virtually every eligible student can get an unsubsidized Stafford Loan, subsidized Stafford loans are available only to students who meet additional eligibility requirements. The big ones are:

  • Financial need: Subsidized Stafford Loans require borrowers to demonstrate financial need, which is determined by the cost of school attendance minus expected family contribution and other financial aid (such as grants or scholarships). In other words, you must show you don’t have enough money to afford the school
  • Dependency Status: Subsidized Stafford Loans are available only to students deemed “dependent.” Everyone else — meaning everyone considered “independent” — are only eligible for unsubsidized loans

Several factors contribute to defining a student as “dependent, ” but a key one is that he or she is an undergraduate, and is younger than twenty-four. Anyone enrolled in a graduate or professional school, or is older than twenty-three, is considered “independent” and therefore ineligible to receive subsidized loans. A dependent student’s parents must chip in what the government deems they’re able as a condition of receiving a subsidized loan

You can learn more about which type of loans you’re eligible for here.

How much can I borrow with a Stafford Loan?

Your school decides the size and types of Stafford Loans you can receive and may offer you Stafford Loans as part of its financial aid package, along with grants or work-study options.

However, the government sets maximums on the amount you can borrow each year in Stafford Loans, as well as on how much you can borrow over the entire course of your education.

These specific limits vary depending on your year in school, the type of school in which you’re enrolled, and your parent’s ability to obtain their own federal loans (called Direct PLUS loans) to help pay for your education.

  • No one can borrow more than $5,500 in subsidized loans each year, but those limits vary depending on your year in school. First-year undergraduates have the lowest limit, at just $3,500.
  • The total annual Stafford Loan limit for subsidized and unsubsidized loans combined is higher, up to $12,500 for undergrads. That means that any Direct Loan offer of more than $5,500 will include at least some portion (the amount above $5,500) as an unsubsidized loan
  • Graduate and professional-school students max out at $20,500 per year in Stafford Loans. Because such students are “independent,” that entire amount must be unsubsidized
  • The aggregate limit — your “lifetime” limit — also varies. Everyone is eligible to borrow up to at least $31,000 (with no more than $23,000 coming from subsidized loans), although not everyone qualifies for that much
  • At the high end, some grad and professional-school students can borrow up to $138,500 (no more than $65,500 in subsidized loans). If you hit your limit, you must pay down some of your Stafford Loan debt to borrow more
  • Finally, people enrolled in some health profession programs at graduate and professional schools may have higher annual and aggregate limits. Your school’s financial aid office will know what you’re qualified for

The following chart summarizes Stafford loan limits:

Annual loan limits
Dependent Students (except students whose parents are unable to obtain PLUS Loans)
Independent Students (and dependent undergraduate students whose parents are unable to obtain PLUS Loans)
First-Year Undergraduate$5,500 (no more than $3,500 in subsidized loans)$9,500 (no more than $3,500 in subsidized loans)
Second-Year Undergraduate$6,500 (no more than $4,500 in subsidized loans)$10,500 (no more than $4,500 in subsidized loans)
Third-Year and Beyond Undergraduate$7,500 (no more than $5,500 in subsidized loans)$12,500 (no more than $5,500 in subsidized loans)
Graduate or Professional Student
Not Applicable (all graduate and professional students are considered independent)

$20,500 (unsubsidized only)
Source: https://studentaid.ed.gov/sa/types/loans/subsidized-unsubsidized#how-much

  • Any subsidized or unsubsidized federal loans you received under the Federal Family Education Loan (FFEL) Program will be taken into account when calculating the aggregate loan limit. As a result of legislation that took effect July 1, 2010, no further loans are being made under the FFEL Program
  • Graduate and professional students are no longer eligible to receive Direct Subsidized Loans after July 1, 2012. The $65,500 subsidized aggregate loan limit for graduate or professional students includes subsidized loans that they may have received before July 1, 2012, or for prior undergraduate study

What is the Federal Stafford Loan interest rate?

The following chart shows the federal Stafford loan interest rates for loans first disbursed between July 1, 2017, and July 1, 2018. These are fixed for the life of the loan. Interest rates differ on loans whose disbursements started earlier. Interest rates for new loans may be higher or lower in future years.

Direct Subsidized LoansDirect Unsubsidized Loans
Undergraduate4.45%4.45%
Graduate or ProfessionalN/A6%
Source: https://studentaid.ed.gov/sa/types/loans/subsidized-unsubsidized#interest-rates

How do I apply for a Stafford Loan?

To apply for a Direct Loan, you must complete a Free Application for Federal Student Aid (FAFSA®) form. You can file as early as October 1 for the upcoming school year. The federal deadline is June 30, but individual schools may have earlier cut-offs to qualify for state and other aid. In short, submit as early as possible.

If you’re dependent, you’ll also need your parents’ financial information to fill out the FAFSA. This information will be used to establish how much they’re able to contribute to your education costs. Independent students, on the other hand, supply only their own information.

Information from the FAFSA will be shared with the schools you specify. Those schools will then determine how much aid you can receive that year. You must submit a new FAFSA each year.

If a school offers you Direct Loans in its financial aid package, you can accept all, some or none of that offer. Remember that you should borrow only the amount you really need in the form of loans.

Learn more about filling out the FAFSA and get some handy tips and tricks to save you time.

How are Stafford Loans disbursed?

The federal government distributes your loan money to your school, to pay the balance of what you owe for tuition and fees.

If anything’s left, your school will give you that money. You can then use that money to pay for education-related expenses, including books, housing or public transportation. Or, you can return it, typically within 120 days, to reduce your loan debt.

Schools are required to disburse loans at least twice per year. Typically, schools have to make loan disbursements at least 10 days before classes start. For first-year undergrads taking out their first Stafford Loans, schools may disburse loans up to 30 days after the start of the term for which the loan was awarded.

You will be assessed a loan fee, a percentage of the loan amount that is proportionately deducted from each loan disbursement. For loans first disbursed between October 1, 2016, and 2017, the fee is 1.066%. For October 1, 2017, to 2018, it’s 1.069%. Before those dates, loans have different fees.

How do I repay my Stafford Loan?

You have a six-month grace period when you graduate, leave school or drop below half-time enrollment before you must start paying off your federal direct Stafford loan. You’ll pay back the government via a loan servicer assigned to you. You don’t make payments to your school.

Unless you select an alternative, you’re subject to the Standard 10-year Repayment Plan. Under that plan, you’ll make fixed monthly payments for 10 years until you pay off the loan’s principal and all interest accrued. Some of the interest may be tax deductible.

Other repayment plans provide lower monthly payments but often cost you more overall, because payments are stretched over a longer time. If you need to lower your monthly payments, your loan servicer can put you on another plan.

In some cases, those plans set your payments as a specific percent of your income.

Stafford Loans are also eligible for the Direct Consolidation Program. This will consolidate all your eligible federal loan debt into a single loan with a monthly repayment based on the weighted-average repayments of the consolidated loans, with a new servicer and loan term. In these circumstances, you are making one payment instead of multiple payments, but the loan repayment amount remains the same.

The U.S. government started granting loans to make higher education more accessible to more Americans. These loans are generally your best bet if you need to borrow money so you can pursue the education that will help you achieve your goals.

Can Stafford Loans be consolidated or refinanced?

You can consolidate Stafford loans under the Federal Direct Consolidation Program. This program will consolidate all eligible federal loan debt into one loan with a monthly repayment based on the weighted-average repayments of the consolidated loans, with a new servicer and loan term.

Alternatively, creditworthy borrowers can refinance their Stafford Loans with private lenders. It’s important to remember that you may lose some federal borrower benefits, such as deferment, forbearance or the option to choose an income-driven repayment plan, when you refinance your loans with a private lender.

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