The Stafford Loan

Student Loans

Stafford loans are part of the FFELP (Federal Family Education Loan Program). They were established by Congress in 1965 to supply financial aid to students and were originally intended to cover those in need. The program rapidly expanded and today over 90% of the more than $50 billion dollars distributed every year within the various FFELP categories are Stafford loans.

Today there are two kinds of loans available through the Stafford program: subsidized and unsubsidized. With subsidized federal stafford student loans, the Federal Government pays any interest that would normally accrue from the time the loan is originated until payments begin. Normally, no payments are due while the student is in school (at least half-time or more), and for a six-month grace period after leaving, although students can request payments to begin earlier.

Subsidized Stafford student loans are generally need-based. Student aid officials examine student and family income to decide if the student qualifies. On examining income information provided on the FAFSA (Free Application for Federal Student Aid) application, a number called the EFC (Expected Family Contribution) is calculated and used to determine eligibility. (Find FAFSA applications here.)

The definition of 'in need' is flexible for a Stafford loan. Although about two-thirds of all subsidized Stafford loans are provided to students whose parents have an Adjusted Gross Income of under $50,000 per year, just under than 10% of subsidized loans are actually granted to students whose combined family income is over $100,000. Another 25% are awarded to those in the $50-100,000 per year range.

Most of the students who don't qualify for a subsidized loan from the federal Stafford student loans program will be eligible for an unsubsidized loan. Keep in mind, though, that with the unsubsidized loans, the interest accumulates from the day the loan money is disbursed until the day it is paid off. For example, even in the case of a modest $4,000 loan, a 6.8% interest rate over the first year is approximately $230 in interest owed. That $230 is then added to the $4,000 and interest charges are calculated on the higher figure the next year.

Since $4,000 is actually a very low amount as student loans go, the numbers can add up quickly. The average undergraduate student (and/or parent) borrows about $15,000 per year in a mix of subsidized and unsubsidized loans, both Stafford loans and those from other sources.

A detailed breakdown of what can be borrowed and by who, under the Stafford loan program is available at the federal student loan website or the Sallie Mae website. Note that fees apply to fund the loan, so students will actually receive less than the stated amounts.

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