Federal Stafford Loans
Students who are enrolled or who have plans to enroll in college often take out federal Stafford loans to help them pay for tuition and other school-related expenses. These loans are backed by the federal government and carry specific terms and conditions.
Interest Rates
Federal Stafford loans disbursed for the first time on or after July 1, 2006 carry a fixed interest rate of 6.8%. (For subsidized loans disbursed in this time frame, the fixed interest rate is 6.0%.) Loans disbursed for the first time before July 1, 2006 have an adjustable rate that is capped at 8.25%.
Loan Limits
Borrowers are restricted in the amounts that they receive through subsidized and unsubsidized federal Stafford loans. These amounts are limited to the following sums:
For dependent students:
Student's First Year: $3,500 in combined subsidized and unsubsidized loans, with another $2,000 available through additional unsubsidized loans
Student's Second Year: $4,500 in combined subsidized and unsubsidized loans, with another $2,000 available through additional unsubsidized loans
Student's Third Year: $5,500 in combined subsidized and unsubsidized loans, with another $2,000 available through additional unsubsidized loans
Student's Fourth Year: $5,500 in combined subsidized and unsubsidized loans, with another $2,000 available through additional unsubsidized loans
Student's Fifth year: $5,500 in combined subsidized and unsubsidized loans, with another $2,000 available through additional unsubsidized loans
Total Undergraduate Amount Allowed: $23,000 in combined subsidized and unsubsidized loans, with another $8,000 available through additional unsubsidized loans
For independent students:
Student's First Year: $3,500 in combined subsidized and unsubsidized loans, with another $6,000 available through additional unsubsidized loans
Student's Second Year: $4,500 in combined subsidized and unsubsidized loans, with another $6,000 available through additional unsubsidized loans
Student's Third Year: $5,500 in combined subsidized and unsubsidized loans, with another $7,000 available through additional unsubsidized loans
Student's Fourth Year: $5,500 in combined subsidized and unsubsidized loans, with another $7,000 available through additional unsubsidized loans
Student's Fifth year: $5,500 in combined subsidized and unsubsidized loans, with another $7,000 available through additional unsubsidized loans
Total Undergraduate Amount Allowed: $23,000 in combined subsidized and unsubsidized loans, with another $34,500 available through additional unsubsidized loans
For graduate students:
$8,500 per year in combined subsidized and unsubsidized, with another $12,000 available through additional unsubsidized loans
Total Graduate Amount Allowed: $65,000 in combined subsidized and unsubsidized loans (including all undergraduate Stafford loans), with another $73,000 available in unsubsidized loans
What's the difference between subsidized and unsubsidized Stafford Loans?
Simply put: interest payments. With a subsidized Stafford loan, the government covers your interest payments as long as you are in school. Also, your loan payments don't begin until six months after you withdraw or graduate from school. While an unsubsidized Stafford loan allows borrowers the option of deferring payments until after graduation, the loan itself begins earning interest as soon as it is taken out.
These may seem like minor differences, but in considering that most college students take an average of four to five years to complete their degrees, any grace period for interest rates (like the one offered by a subsidized Stafford Loan) can result in a great deal of long-term savings.
What's the difference between Direct Stafford Loans and FFELP Stafford Loans?
The federal government backs all Stafford loans, and they all have identical requirements and guidelines for approval. Whether a Stafford loan is classified as a Direct Loan or a FFELP Loan depends solely on the lender. For Direct Loans, borrowers receive their funds directly from the federal government. FFELP Loans require the use of a third-party lender (a bank or a credit union, for example) to disburse the funds.
The main difference that separates these two types of Stafford loans comes in considering the method of repayment of student loans. Each offers a specific advantage, depending on your goals for consolidation and repayment. To learn more about these advantages, please visit our section discussing student loan consolidation and repayment.
