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As part of the Federal Family Education Loan Program (FFELP), the Federal Stafford Loan Program is a cooperative arrangement between the federal government, ISAC, and lending institutions. The program enables students and their families to work directly with approved lending institutions to borrow low-interest loans for postsecondary education. Each lending institution uses its own funds to make these loans; therefore, the lender decides whether to approve or deny each application. When selecting a lender, students and parents may want to consider a lending institution where they have other account relationships, if that institution is a program participant. Colleges can also provide potential borrowers with information about participating lenders.

Some schools participate in the Federal Direct Student Loan Program, under which the federal government acts as the lender instead of commercial lending institutions. The terms and conditions for borrowing are very similar for both programs.

Subsidized and Unsubsidized Federal Stafford Loans

Two types of Federal Stafford loans are available: subsidized and unsubsidized. The Federal Stafford Loan Overview Chart provides a side by side comparison of the two programs.

Eligibility

To qualify for either a subsidized or unsubsidized Federal Stafford loan, an individual must:

be a United States citizen or an eligible noncitizen;
have a high school diploma or GED certificate;
attend an approved college or postsecondary school on at least a half-time basis, working toward a 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; and
maintain satisfactory academic progress as determined by the college or university.

In addition to these eligibility requirements, to qualify for a subsidized Federal Stafford loan the individual must demonstrate financial need.

How to Apply

The application process is the same for both the subsidized and unsubsidized Federal Stafford loan. The first step in applying for loans, as well as applying for the Federal Pell Grant, ISAC's Monetary Award Program (MAP) grant, and other financial aid, is to complete the online Free Application for Federal Student Aid (FAFSA). Check with the school's financial aid office to determine if any additional forms are needed. The financial aid administrator at the school determines the student's eligibility for both loan types.

Eligibility Formulas

To determine subsidized Federal Stafford loan eligibility (which must be done before determining unsubsidized loan eligibility), the financial aid administrator uses a federal formula.

Once eligibility for either type of Federal Stafford loan has been determined, the student and school must provide the student's loan data to ISAC, either electronically or by the school completing a Federal Stafford Loan School Certification form. The student must sign a Federal Stafford Loan Master Promissory Note (MPN), promising to repay the loan funds plus interest to the lender.

Interest Rate

The current Federal Stafford loan interest rate is fixed at 4.5% for subsidized undergraudate loans and 6.8% for subsidized graduate and unsubsidized undergraduate and graduate loans.

The interest rate on subsidized Federal Stafford loans for undergraduate students will be gradually reduced over a period of four years, as shown below:

Loans first disbursed 7/1/10 through 6/30/11 - fixed rate of 4.5%
Loans first disbursed 7/1/11 through 6/30/12 - fixed rate of 3.4%

Loans disbursed on or before July 1, 2006 have a variable interest rate adjusted annually on July 1st, with a maximum of 8.25%. The Federal Stafford loan variable interest rate for the period July 1, 2010 through June 30, 2011 is 1.87% for loans during in-school, grace and deferment periods, and 2.47% for loans in repayment and forberance.

Loan Limits

Maximum annual limits for undergraduate and graduate students are monitored by the school based on federal regulations.

Fees and Disbursements

Two fees may be deducted from the proceeds of each loan prior to disbursement. Subsidized and unsubsidized loans are currently charged a federal loan origination fee of 1% and a default fee of 1% of the loan amount. For FFELP loans guaranteed by ISAC on or after July 15, 2008, ISAC pays one-quarter (25%) of the 1% federally-mandated default fee on behalf of the borrower, with the remaining portion to be paid by either the lender or the student borrower. (Continuation of this benefit is subject to periodic review).

ISAC-approved lenders are required to remit the remaining portion of the 1% default fee to ISAC, whether that amount is collected from the borrower's loan proceeds or paid on the borrower's behalf by the lender.

All loans are disbursed in at least two installments, and the loan proceeds are either mailed or electronically transmitted directly to the institution.

Repayment Provisions

Repayment of principal and interest on a subsidized and unsubsidized Federal Stafford loan begins six months after graduation or after enrollment at an eligible institution drops below half time. With unsubsidized Federal Stafford loans, a student is always responsible for paying the interest; interest accrual begins on the date of the first disbursement. The student has the option of paying this interest while in school and during the grace period, or it may accrue and be added to the principal balance of the loan (capitalized). The student should contact his/her lending institution for more information.

Deferment options are available for both types of Federal Stafford loans. Subsidized loan borrowers are able to defer both principal and interest, while unsubsidized borrowers can defer only the principal portion of payments. Payment of interest during a deferment remains the responsibility of the unsubsidized borrower. The student should contact his/her lending institution for more information.