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If you’ve been hearing about Stafford loans and want to know more about what they are, the pros and cons of Stafford loans, or whether you can refinance Stafford loans, you’ve come to the right place.

What is a Stafford loan?

Stafford loans are educational loans offered by the federal government, available to undergraduate students as well as professional and graduate students.

A Stafford Loan is currently the most popular student loan among federal student loan options due to its low interest rates and numerous borrower benefits. All Stafford Loans are eligible for in-school deferment, which allows students to defer repayments if enrolled in school at least half time. If a student drops below half-time enrollment or graduates, there is also a 6-month grace period, during which the borrower is not required to start making repayments.

Stafford Loans do come with strict eligibility requirements and borrowing limits. Annual and lifetime limits vary based on the type of program a student is enrolled in, the cost of attendance, the borrower’s dependency status, and level of degree.

The fees associated with Stafford Loans are on average 1.0% of the loan balance.

Are Stafford loans subsidized or unsubsidized? What is a subsized loan?

Stafford Loans can be either subsidized or unsubsidized. Subsidized loans do not charge interest to students while they are attending school on at least a half time basis, or during authorized times of deferment (such as during approved economic hardship.) Subsidized Stafford Loans are only given to undergraduate students who can demonstrate financial need.

Unsubsidized Stafford Loans begin accruing interest from the date of disbursement. Borrowers are fully responsible for paying the interest on the loan. All students, including those in professional or graduate school, that are eligible for federal aid are eligible for Unsubsidized Stafford Loans. However, the borrower’s school determines the amount that can be received based on the cost of attendance and any other financial aid received.

Which is better, a subsidized or unsubsidized loan?

Federal subsidized and unsubsidized direct federal loans for undergraduates carry the same low, fixed interest rate, so it is generally a good idea to take out a subsidized loan before taking on additional debt with an unsubsidized loan. For more information on paying for your education with subsidized and unsubsidized loans, go here.

What is the direct loan program?

The Direct Loan program is the program through which the U.S. Department of Education offers borrowers various types of student loans, including Stafford loans.

Stafford Loan Interest Rates

 In recent years, Subsidized and Unsubsidized Stafford loans have had the same interest rate associated with each loan. The period between mid 2008 and 2013, unsubsidized loans had higher interest rates.

 Historical interest rates by academic year are shown below.

Academic Year Undergraduate Subsidized Loans Undergraduate Unsubsidized Loans
2015-2016 4.29% 4.29%
2014-2015 4.66% 4.66%
2013-2014 3.86% 3.86%
2012-2013 3.40% 6.80%

 

How Do I Apply for a Stafford Loan?

Eligibility for Stafford Loans is determined by the FAFSA, the Free Application for Federal Student Aid. A borrower’s FAFSA is sent to the academic institution listed on the application with the expected family contribution level (EFC) of the borrower. The school will then determine the amount of aid that can be given in the form of Subsidized and/or Unsubsidized Stafford Loans.

Is there a cap on student loans?

There are certain limits to how much money you can borrow in federal student loans. If you are an undergraduate student you can borrow a maximum of $12,500 per year in Direct Subsidized Loans and Direct Unsubsidized Loans depending on certain factors, including your year in college.

For graduate students, the maximum is $20,500 each year in Direct Unsubsidized Loans, with the remaining costs that are not covered by other financial aid, which can be covered by Direct PLUS Loans.

Can Stafford Loans be consolidated or refinanced?

Stafford loans are eligible for consolidation under the 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 is important to assess some of the federal loan borrower benefits that my be lost with a private loan refinancing, but often borrowers can reduce the overall interest rate and/or the monthly repayment on their student loans through a private student loan consolidation.