Stafford Loans: The Largest Student Loan Program - COLLEGEdata - Pay Your Way

Stafford Loans: The Largest Student Loan Program

The federal Stafford Loan Program is the biggest source of low-interest college loans. In fact, almost any college student can get one. Got your attention?

The following information applies to undergraduate Stafford loans disbursed on or after July 1, 2014 through June 30, 2015.

Why the Stafford Loan Is a Good Deal

Interest rates for Stafford Loans are lower than those for regular consumer loans. Undergraduate students with financial need get something more: a "subsidized" loan, meaning the interest is paid by the government while the student is in college. (Students without financial need are eligible for an "unsubsidized" Stafford loan, with interest accruing as soon as the student gets the loan.)

Stafford Loan Rates and Fees

For the 2014–2015 school year the interest rate for new subsidized and unsubsidized undergraduate Stafford loans is 4.66 percent. This rate will change each year based on financial market conditions and will not exceed 8.25 percent. The loan fee is 1.07 percent of the loan amount.

Stafford Loan Limits

Dependent student limits. A dependent freshman can borrow a subsidized loan up to $3,500 a year. The limit goes up to $4,500 for sophomores and $5,500 for juniors and seniors. Dependent undergraduates can borrow up to $2,000 in additional unsubsidized loans.

Independent student limits. Independent students have the same limits for subsidized loans, but they can borrow larger unsubsidized loans: up to $6,000 for freshmen and sophomores and up to $7,000 for juniors and seniors.

Total limits. The total amount of loans for a dependent undergraduate student is limited to $31,000 ($23,000 of which can be subsidized). The limit is $57,500 for independent undergraduate students ($23,000 of which can be subsidized).

Time limits. The time limit for receiving subsidized loans is equal to 150 percent of the published length of the degree program. For example, a student enrolled in a four-year degree program can receive subsidized loans for up to six years. This time limit does not apply to unsubsidized loans.

Applying for (and Getting) Stafford Loan Money

As with all federal loans, students apply by submitting the FAFSA (Free Application for Federal Student Aid). The college will offer the loan to the student in its financial aid award letter. The loan must be used only for educational purposes and the student must maintain satisfactory academic progress as determined by the school.

The college will use the money to pay the student's tuition, fees, and room and board. If loan funds remain, the student will receive them by check or in cash.

Repayment Plans Are Flexible

The plans allow between ten and twenty-five years to repay a Stafford loan, with payments beginning six months after the student leaves college or drops below half-time enrollment.

  • The standard plan sets up the same payment amount every month (with a minimum payment of $50).
  • The graduated plan starts out with lower payments that increase every two years. Students must repay this loan within ten years.
  • The extended plan sets up either a fixed or graduated payment over a period of twenty-five years. These are for large loan amounts.
  • The income-sensitive plans allow payments to fluctuate according to the borrower's annual income, family size, and other factors. For example, the Pay As You Earn plan reduces monthly loan payments to 10 percent of discretionary income and forgives the remaining loan balance after 20 years of consistent payments.

With few exceptions, not repaying a student loan will lead to garnishment of wages and income tax refunds, and a negative impact on credit history. Not even bankruptcy can clear a borrower of student loan debt.

What's Next?

Note: Financial information provided on this site is of a general nature and may not apply to your situation. Contact a financial or tax advisor before acting on such information.