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 U.S. Department of Education, the agency that provides federal loans to students.
If you’re one of the more than 32 million Americans who have a federal Stafford Loan currently — or are considering joining their ranks — read on to learn more about what federal Stafford student loans are and how 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), refer to subsidized and unsubsidized loans that the federal government provides. These loans help cover the cost of higher education at eligible four-year colleges and universities, community colleges, and vocational or technical schools.
Stafford Loans make up the majority of borrowed student debt, and they’re generally your best bet if you need financial aid to pursue the education that will help you achieve your goals.
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 options. These loans will be assigned to a loan servicer, which is a company that manages the debt and is your point of contact when it’s time to start paying down your balance.
It’s usually best to turn to scholarships, grants, and work-study opportunities before taking out loans to pay for your education. But if you must turn to loans, you should take out federal student loans before borrowing from a bank or other private lender.
Good to Know: Most federal student loans don’t require a credit check to qualify. The exception is PLUS loans for parents, and graduate or professional students. But adverse credit history doesn’t automatically disqualify you from getting a PLUS loan.
Subsidized Stafford Loans vs. Unsubsidized Stafford Loans
The key distinction between Subsidized and Unsubsidized Stafford Loans is that the federal government pays interest that accrues on subsidized loans during certain periods:
- While you’re in school at least half-time, as defined by that school. That usually means you’re enrolled in at least six credits of classes per semester when 12 is considered full-time.
- While the loan is in deferment, which allows you to temporarily pause loan payments when you’re unemployed or demonstrate financial hardship.
- During a grace period of the first six months after you leave school. Note, however, that if you received a Subsidized Stafford Loan that was first disbursed between July 1, 2012, and July 1, 2014, you’ll 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 you’re responsible for paying all of it. If you’re offered both types, it’s typically best to opt for the subsidized loan 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 for 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 the two loan types have important differences. 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 dependent students. Independent students are only eligible for unsubsidized loans.
Several factors contribute to defining a student as “dependent, including that they’re an undergraduate and younger than 24. Anyone enrolled in a graduate or professional school, or who is older than 23, is considered independent and won’t be eligible for 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 by visiting StudentAid.gov.
How much can I borrow with a Stafford Loan?
Your school decides the amount e and type of Stafford Loan you can receive and may offer you Stafford Loans as part of its financial aid package, along with grants or work-study options.
But 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.
The following chart summarizes Stafford Loan limits:
- 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.
How do I repay my Stafford Loan?
You have a six-month grace period after you graduate, leave school, or drop below half-time enrollment before you must start paying off your federal Stafford Loan. When it’s time to start making payments, you’ll repay the government via a loan servicer who will be assigned to you.
Unless you choose an alternative, you’ll be enrolled in the 10-year Standard Repayment Plan. Under this plan, you’ll make fixed monthly payments for 10 years until you pay off the loan’s principal balance and all accrued interest. (Some of that interest may be tax-deductible, so it’s a good idea to consult a tax professional.)
Other loan repayment options can spread your payments out to a maximum of 30 years or adjust your monthly payment amount. While these options can make repayment easier, you’ll also pay more interest over the life of the loan.
- Income-driven repayment plans: IDR plans establish your monthly payment as a specific percentage of your income. These plans can make it easier to make your student loan payments by lowering your monthly payment amount.
- Graduated payment plans: These repayment plans are designed for students who have a lower income at graduation but expect to make more in the future. You’ll have a lower monthly payment for the first few years, which increases incrementally over the life of the loan.
- Direct Consolidation Program: Stafford Loans are also eligible for the Direct Consolidation Program. This process will consolidate all your eligible federal loan debt into a single federal Direct Consolidation Loan with an interest rate that’s a weighted average of all the loans you’re consolidating. Direct Consolidation Loans are assigned a new servicer and loan term. In these circumstances, you’re making one payment instead of multiple payments, but the total loan repayment amount remains the same.
What is the Federal Stafford Loan interest rate?
Congress sets federal student loan interest rates each year. The chart below shows the federal Stafford Loan interest rates for loans disbursed between July 1, 2022, and July 1, 2023:
These rates are fixed for the life of the loan. Interest rates may differ on loans with earlier disbursements, and rates for new loans may be higher or lower in the future.
Stafford Loan FAQs
Here are some answers to frequently asked questions about Stafford Loans.
How do I apply for a Stafford Loan?
To apply for a StaffordLoan, you must complete the Free Application for Federal Student Aid (FAFSA). You can file as early as Oct. 1 for the upcoming school year. The federal deadline is June 30, but individual schools may have earlier cutoffs to qualify for state and other aid. In short, submit as early as possible.
Tip: Keep in mind that some financial aid is given on a first-come, first-served basis — so it’s a good idea to fill out the FAFSA as early as you can, especially if you have high financial need.
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 time-saving tips and tricks.
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, which you can use to pay for education-related expenses, including books, housing, or public transportation. You can also 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’ll be assessed a loan fee, a percentage of the loan amount that’s proportionately deducted from each loan disbursement. For loans first disbursed between Oct. 1, 2019, and Oct. 1, 2020, the fee is 1.059%. From Oct. 1, 2020, to Oct. 1, 2022, it’s 1.057%. Before those dates, loans have different fees.
Can I consolidate or refinance Stafford Loans?
You can consolidate Stafford Loans under the federal Direct Consolidation Program. This program will consolidate all eligible federal loan debt into one loan with an interest rate that’s a weighted average of the interest rates on all the loans you’re consolidating. You’ll have a new servicer and loan term.
If you have good credit, you can refinance your Stafford Loans with a private lender. It’s important to remember that refinancing federal loans into a private loan will cause you to lose some federal borrower benefits, such as deferment, forbearance, or income-driven repayment plans.
Credible makes it easy to see your prequalified private student loan rates from multiple lenders.