Last Updated: July 17, 2012
After you submit your FAFSA (Free Application for Federal Student Aid), you may become eligible for one of several financial aid options. The Stafford Loan is the most common type of government aid for students. So, what is it and how does it work? Let’s break it down:
Who: Stafford Loans are available to undergraduate or graduate students who are enrolled in school at least part-time. While it doesn’t matter if your credit is good or bad, you just can’t be in default on a previous loan.
What: A Stafford Loan is a fixed rate federal loan. Fixed rate means that the interest rate on your loan does not change. These are the most common student loans and some of the least expensive ways to pay for school. Based on your need as calculated by the FAFSA, you will be awarded either a subsidized or an unsubsidized loan.
- Subsidized = the government pays your loan interest when you are enrolled in school. As of July 1, 2012, subsidized Stafford Loans have a low fixed interest rate of 3.4% and are not available for graduate students.
- Unsubsidized = you pay your loan interest. Interest starts building up at a fixed 6.8% as soon as your school receives funds. Even though you don’t have to pay the interest while you are in school, it will grow and then be added to the total loan amount when you are done with school. Then you’ll start paying interest on that interest. So, its in your best interest to pay as you go!
Where: Most colleges and universities accept Stafford Loans. Check with your academic adviser if you are uncertain.
When: Each college and university has a different deadline for financial aid submissions or notifications. Check with yours to make sure you don’t miss it.
How: To be approved for federal financial aid, you must fill out the FAFSA. The amount of money you are allowed to borrow each year is limited and may change; you need to renew your FAFSA every year and re-apply for a Stafford Loan. Funds are deposited directly into your student account twice per year, usually in the fall and winter semesters.
After you graduate – or are no longer a part-time or full-time student – you have a 6 month span of time called a grace period. During this time you do not need to make any payments on your loan, but you have the option to do so. After that grace period, you’ll need to start your monthly payments. You have 10 years to pay back your loans and any interest accumulated.
Finally, you will have to participate in a Stafford Loan Exit Counseling Session. Basically, you’ll need to prove that you have either completed school or are no longer in school. You’ll receive information on how to pay back your loans at this session.
Original Post Date: July 13th, 2012