Everything You Need to Know About Stafford Loans

Everything You Need to Know About Stafford Loans

Are you applying to colleges? If it’s time to start writing essays and sending in applications, it’s also time to start looking at how you’re going to fund your college career. Even if your parents haven’t set aside a college fund for you over the years, you can still afford to cover your tuition and fees with the help of federal financial aid. Whether or not you qualify for any federal grants, you will likely be eligible for subsidized or unsubsidized Stafford loans.

So what is a Stafford loan? How much will it cover? And how do you find out if you’re eligible?

What Is a Stafford Loan?

First of all, Stafford loans are loans awarded directly to college students, based on the information in their FAFSA (Free Application for Financial Aid). If you are a dependent student, your FAFSA will not only reflect your income and tax information but also that of your parents, and this will affect both how much money you are eligible to receive through Stafford loans and whether or not you are eligible for a subsidized loan.

Subsidized vs. Unsubsidized

If you are an independent student and/or you show sufficient financial need even with assistance from your parents, you may qualify for a subsidized loan. If you get a subsidized loan, you won’t have to pay any interest for the time that you’re enrolled in school or the six-month grace period after you graduate and before you start repaying your loans.

Subsidized loans begin accruing interest (which you’re responsible for paying) as soon as the first loan disbursement is made. However, you will still not be responsible for paying off your loan until six months after you leave school.

Stafford Loans Don’t Always Cover Everything

If you are a dependent student, and you file a FAFSA, you will likely get a student aid report (SAR) that seems a little bit disappointing at first. If you’re unaware of how federal student aid works and what to expect, you might wonder, “How do they expect me to pay for tuition with only $4,000-8,000 (your loan limit may vary, depending on your financial need) per year?

Well, the Stafford loans are direct student loans. It represents your financial need, including factors like your parents’ income. Think of your Stafford loan as the amount of your college tuition that you’re responsible for paying, not as the extent of your federal student loans.

For example, a lot of students fund their college careers with help from their parents and federally-funded parent PLUS loans. These loans are specifically designed to fill the gap between the cost of your tuition and your other financial aid (like Stafford loans).

Fill Out a FAFSA

So, how can you find out how much of your fees and tuition will be covered by your Stafford loan? Just fill out and submit a FAFSA. With this single application submitted online, you can actually apply for all applicable forms of federally funded grants and loans for college students.

For example, if you’re an independent student and/or your parents can prove financial need, you could qualify for a Pell grant or FSEOG (Federal Supplemental Education Opportunities Grant). These are both forms of federal financial aid that don’t need to be paid back once you graduate, and you don’t need to fill out any extra paperwork or do any other work to qualify.

At the same time, algorithms will be applied to your financial information (and that of your parents, if applicable) to calculate your financial need. This will determine how much money you qualify to receive for your Stafford loan. It will, of course, be higher if you are an independent student with significant financial need.

What to Do Next

If your Stafford loan doesn’t cover your tuition and fees for college, don’t get discouraged. Take a look at the current interest rates and trends for parent PLUS loans. Last year parents paid 7.21% interest on PLUS loans, which is not bad for a fixed rate loan. However, some private lenders are offering some very attractive borrowers’ incentives to entice people to choose them over PLUS loans to cover the cost of school.

If you’re looking into private loans for your parents to sign or for loans that you’ll take out on your own (with a cosigner), be very diligent about reading the fine print. A loan may be advertised as low as 2.6%, which seems a lot better than 7.21% for the PLUS loan. However, quite often these loans have variable interest rates, which can start out low but may spike in just a few months.

Talk to your parents about your options for federal and/or private loans. Do your research on all of your options, and choose the best one available.

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