Federal loan
Stafford Student Loans
Stafford student loan is a type of federal loan offered to eligible students enrolled for higher education in American Institutions, under the Higher Education Act, 1965, for funding their studies. These Federal loan are guaranteed by U.S Department of Education and hence carry a lower interest rate when compared to private student loans.
Students who wish to apply for a Stafford loan must complete a form, known as *Free Application for Federal Student Aid (FAFSA)*, to determine their eligibility for the loan. Information provided in FAFSA also helps eligible students to receive non-federal awards as many states and schools in US use this form for awarding non-federal loans to students.
Students can receive a Stafford loan directly from the U.S Department of Education through the distribution channel, Federal Direst Student Loan Program (FDSLP) or from a private lender through another distribution channel, known as Federal Family Education Loan Program (FFELP). Students who avail this loan are not required to make any repayments during their full-time course period and for another six months after graduation or after dropping out of their full-time program. Stafford loans comes with a dual interest structure, where the interest on the loan amount is much lower during the study period and in the following grace period (six months), but eventually increases in the repayment period.
From July 2006, all Stafford loans come with a fixed interest rate, which is around 6.8% per annum, unlike in earlier cases where the interest rates were calculated using an adjustable formula, based on the market rates in the previous 91-day period. Some of the Stafford loans are subsidized by the federal government, taking in to account the financial background of student borrower.
How to get a Stafford loan:
As mentioned earlier, students who would like to avail a Stafford loan should fill out a FAFSA that will be processed by the Department of Education, which will then send a Student Aid Report (SAR) to the applicant. An electronic copy of this report will also be sent to the school, which has been listed by the applicant in the FAFSA. The student aid report contains the Expected Family Contribution (EFC), which is nothing but the money that the student*s family could contribute to their higher studies. EFC will be calculated based on the financial information provided by the student in FAFSA Federal loan and it will be used to determine the students eligibility to receive federal student aid.
Students may then have to choose their lender, if they opt for a FFELP Stafford loan. The U.S federal government is the lender in the case of direct Stafford loans issued through FDSLP. While choosing a lender, under FFELP, students should consider the following,
* Interest rates offered by the lender
* Complexity of repayment plans offered
* Benefits offered to the borrowers
* Customer service extended to the borrowers
Usually all schools that participate in the FFEL Program, will have a preferred list of lenders, based on the above factors and students can choose their lender from this list.
Borrowing limitations on Stafford loans
Students can borrow a subsidized or an unsubsidized Stafford loan based on their financial needs. In the case of subsidized loans the
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federal government pays the interest for the loan amount during the study period and for six months after graduating. If required, Federal loan can borrow funds beyond the subsidized loan amounts, if their financial needs are much higher. In such circumstances, the additional amount borrowed will be unsubsidized.
A dependent undergraduate student can borrow up to,
* $2,625 if the student is in the first-year of full-time program, which requires a full academic year
* $3,500 if the student has completed the first-year of a program of study, which extends for another full academic year
* $5,500 if the student has completed two years of a program, which requires another full academic year
In the case of independent undergraduate students or dependent undergraduate students, whose parent were not able to get a parents loan, the student can borrow up to,
* $6,625 if the student is in the first-year of full-time program, which requires a full academic year (only $2,625 of this amount will be subsidized by the federal government)
* $7,500 if the student has completed the first-year of a program of study, which extends for another full academic year (only $3,500 of this amount will be in subsidized loans)
* $10,500 if the student has completed two years of a program, which requires another full academic year (only $5,500 of this amount will be in subsidized loans)
These are the maximum Stafford loan amounts that students can borrow in a year.
Payment of Stafford Loan
Stafford loans are paid through schools in two installments (in both the cases of FDSLP and FFELP), which will be used for paying the tuition fee, accommodation charges and other school fees of the student. The remaining amount will be paid to the Federal loan student in cash or by check, unless the student authorizes the school to hold the remaining funds till the end of the enrollment period.
Student loans like the Stafford loans help many American students, who are not financially strong, to complete their higher-education and pursue a better-paying career. Since the interest rates are very low, these loans are a boon to the students and parents, in their search for a better future.
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