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The Federal Stafford Loan Program allows a student to borrow money with low interest for educational expenses. Federal Stafford Loans are available through both the Federal Family Education Loan Program (FFELP) and the William D. Ford Federal Direct Loan Program (Federal Direct Loans). The college will determine through which program a student can borrow.
There are two types of Federal Stafford Loans available: subsidized and unsubsidized. Eligibility for subsidized Federal Stafford Loans is based on financial need, and the federal government pays the interest on the student’s behalf while he or she is enrolled at least half time, during grace periods, and during authorized deferment periods. Eligibility for unsubsidized Federal Stafford Loans is not based on financial need, but the student is responsible for paying interest at all times. The student may pay this interest while in school, or the student can allow it to accrue and capitalize. The capitalized amount will be added to the principal balance and will need to be paid off with the rest of the loan when he or she stops attending college on at least a half-time basis.
Eligibility
To be eligible, an applicant must:
- Be a U.S. citizen or an eligible non-citizen
- Have a high school diploma or GED certificate
- Attend college on at least a half-time basis, and be working toward an eligible degree or certificate
- Comply with federal Selective Service registration requirements
- Not be in default on any student loan, nor owe a refund on any state or federal grant
- Maintain satisfactory academic progress as determined by the college
How to Apply
The application processes for both the subsidized and unsubsidized Federal Stafford Loans are the same. Complete a Free Application for Federal Student Aid (FAFSA). In order to be eligible for the unsubsidized Federal Stafford Loan, a student must first apply for the subsidized loan. Check with the college’s financial aid office to determine if any additional forms are needed. The college’s financial aid administrator determines a student’s eligibility for both loan types.
Once determined eligible, the school will submit the student’s loan information to ISAC or another guaranty agency (if the school participates in FFELP) through either an electronic or paper process. Before loan funds can be disbursed to the school on the student’s behalf, the student must complete and sign a Master Promissory Note (MPN). An MPN is a legal-binding document on which the student promises to repay the funds disbursed, plus interest, to the lender.
Eligibility Formulas - Subsidized Stafford Loan
| Cost of attendance |
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(MINUS) Expected Family Contribution (determined by completing the FAFSA) |
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| - |
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(MINUS) Other financial aid a student is expected to receive (grants, scholarships, Federal Work-Study, other loans)
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| = |
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(EQUALS) Subsidized Federal Stafford Loan eligibility (not to exceed the program loan limit maximums) |
Eligibility Formulas - Unsubsidized Stafford Loan
If a student has limited or no subsidized Federal Stafford Loan eligibility, the financial aid administrator can determine if the student is eligible for an unsubsidized Federal Stafford Loan.
| Cost of attendance |
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| - |
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(MINUS) Other financial aid the student is expected to receive (including a subsidized Federal Stafford Loan) |
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| = |
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(EQUALS) Unsubsidized Federal Stafford Loan eligibility (not to exceed the program loan limit maximums) |
Interest Rate
Currently, the interest rate for Federal Stafford Loans is variable, adjusted annually on July 1, and cannot exceed 8.25 percent over the life of the loan.
Subsidized and Unsubsidized Federal Stafford Loan Interest Rates for July 1, 2005 - June 30, 2006:
- 4.70% - while the borrower is in school, during the grace period and during periods of deferment
- 5.30% - during repayment and forbearance
Loan limits - Undergraduate Student - Dependent
Loan limits - Undergraduate Students - Independent
Loan limits - Graduate Students
Fees and Disbursements
Two fees may be deducted from the proceeds of each loan prior to disbursement. Subsidized and unsubsidized loans are charged a federal loan origination fee of three percent, and a guarantee fee of one percent or less of the loan amount. ISAC does not currently charge the one percent guarantee fee, although it is subject to reinstatement based on periodic review.
All loans are disbursed in at least two installments, and the loan proceeds are either electronically transmitted or mailed directly to the institution.
Repayment Provisions
Repayment of both principal and interest on a subsidized Stafford loan begins six months after graduation, or after the student drops below half-time enrollment. For an unsubsidized Stafford loan, the student will be responsible for paying the interest on the loan from the day it is disbursed (there are options for paying the interest, which can be worked out with the lender). Like a subsidized loan, repayment of principal on an unsubsidized loan begins six months after graduation or after the student drops below half-time enrollment.
Most student loan payments are set up on a standard repayment plan with monthly payments that remain the same throughout the repayment period. However, there are other plans available that may make the payments more manageable.
Deferment, forbearance and forgiveness options are available for both types of Federal Stafford Loans. Both principal and interest will be deferred on subsidized loans, while unsubsidized borrowers can defer only the principal portion of payments. Payment of interest on an unsubsidized loan during a deferment is the borrower’s responsibility. The interest can either be paid on a monthly or quarterly basis, or it can be added into the principal balance of the loan at the time regular payments resume after expiration of the deferment.
Click here to access a Free Application for Federal Student Aid (FAFSA).
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