Stafford Loans

Taken from The Student Guide of the U.S. Department of Education

Direct and Federal Family Education Loans (FFEL) Stafford Loans
Direct and FFEL Stafford Loans are the Department’s major form of self-help aid. Direct Stafford Loans are available through the William D. Ford Federal Direct Loan (Direct Loan) Program and FFEL Stafford Loans are available though the Federal Family Education Loan (FFEL) Program. The terms and conditions of a Direct Stafford or a FFEL Stafford are similar. The major differences between the two are the source of the loan funds, some aspects of the application process, and the available repayment plans. Under the Direct Loan Program, the funds for your loan are lent to you directly by the U.S. government. If your school does not participate in Direct Loans, the funds for your loan are lent to you from a bank, credit union, or other lender that participates in the FFEL Program.

The Direct and FFEL programs also offer PLUS Loans for parents of dependent students and Consolidation Loans.

What kinds of Direct and FFEL Stafford Loans are available?
Direct and FFEL Stafford Loans are either subsidized or unsubsidized. A subsidized loan is awarded on the basis of financial need. You will not be charged any interest before you begin repayment or during authorized periods of deferment. The federal government "subsidizes" the interest during these periods.

An unsubsidized loan is not awarded on the basis of need. You’ll be charged interest from the time the loan is disbursed until it is paid in full. If you allow the interest to accumulate, it will be capitalized—that is, the interest will be added to the principal amount of your loan and additional interest will be based upon the higher amount. This will increase the amount you have to repay. If you choose to pay the interest as it accumulates, you’ll repay less in the long run. You can receive a subsidized loan and an unsubsidized loan for the same enrollment period.

Who can get a Direct or FFEL Stafford Loan?
If you’re a regular student enrolled in an eligible program of study at least half time, you may receive a Direct or FFEL Stafford Loan. You must also meet other general eligibility requirements.

How much can I borrow?
If you’re a dependent undergraduate student you can borrow up to

  • $2,625 if you’re a first-year student enrolled in a program of study that is at least a full academic year.
  • $3,500 if you’ve completed your first year of study and the remainder of your program is at least a full academic year.
  • $5,500 a year if you’ve completed two years of study and the remainder of your program is at least a full academic year.

If you’re an independent undergraduate student or a dependent student whose parents are unable to get a PLUS Loan, you can borrow up to

  • $6,625 if you’re a first-year student enrolled in a program of study that is at least a full academic year (only $2,625 of this amount may be in subsidized loans).
  • $7,500 if you’ve completed your first year of study and the remainder of your program is at least a full academic year (only $3,500 of this amount may be in subsidized loans).
  • $10,500 a year if you’ve completed two years of study and the remainder of your program is at least a full academic year (only $5,500 of this amount may be in subsidized loans).

For periods of study that are less than an academic year, the amounts you can borrow will be less than those just listed. Talk to your financial aid administrator to find out how much you can borrow.

NOTE: Direct and FFEL Stafford Loans are not made to students enrolled in programs that are less than one-third of an academic year.

Generally, if you’re a graduate student, you can borrow up to $18,500 each academic year. (Only $8,500 of this amount may be in subsidized Stafford loans.)

NOTE: The amounts given above are the maximum yearly amounts you can borrow in both subsidized and unsubsidized loans. You may receive less than these yearly maximum amounts if you receive other financial aid that is used to cover a portion of your cost of attendance. The total debt you can have outstanding from all Stafford Loans combined is

  • $23,000 as a dependent undergraduate student
  • $46,000 as an independent undergraduate student
  • $23,000 of this amount may be in subsidized loans
  • $138,500 as a graduate or professional student
  • $65,500 of this amount may be in subsidized loans


    The graduate debt limit includes any Stafford Loans received for undergraduate study.

    NOTE: Your school can refuse to certify your loan application or can certify a loan for an amount less than you would other-wise be eligible for, if the school documents the reason for its action and explains the reason to you in writing. The school’s decision is final and cannot be appealed to the U.S. Department of Education.

How will I receive my Direct or FFEL Stafford Loan?
For a Direct Loan the U.S. Department of Education will pay you through your school. For a FFEL Stafford Loan, the lender will send the loan funds to your school. In most cases, your loan will be disbursed in at least two installments; no installment can be greater than half the amount of your loan.

Your loan money must first be used to pay for your tuition and fees, room and board, and other school charges. If loan money remains, you’ll receive the funds by check or in cash unless you give the school written permission to hold the funds until later in the enrollment period.

If you’re a first-year undergraduate student and a first-time borrower, your first payment may not be disbursed until 30 days after the first day of your enrollment period. This way, you won’t have to repay the loan if you don’t begin classes or if you withdraw during the first 30 days of classes. (However, you may owe money to the school for a portion of tuition or other fees.)

Will I have an opportunity to cancel my loan after I apply?
Yes. Your school must notify you in writing whenever it credits your account with your Direct or FFEL Stafford Loan funds. This notification must be sent to you no earlier than 30 days before, and no later than 30 days after the school credits your account. You may cancel all or a portion of your loan by informing your school that you wish to do so within 14 days after the date that your school sends you this notice, or by the first day of the payment period, whichever is later. Your school can tell you the first day of your payment period. If you receive Stafford Loan funds directly by check, you may refuse the funds by not endorsing the check.

What's the interest rate charged on these loans?
If you have a loan that was first disbursed on or after July 1, 1994, the interest rate could change each year of repayment but it will never exceed 8.25 percent. The interest rate is adjusted each year on July 1. You’ll be notified of interest rate changes throughout the life of your loan.

If you had loans that were first disbursed before July 1, 1994, the interest rate on these loans may be different. Check with the lender or agency that holds your loan.

If you have subsidized loans, you will not be charged interest while you’re enrolled in school at least half time,* during a grace period, or during authorized periods of deferment. Interest will begin to accrue—that is, accumulate—when you enter repayment.

If you have unsubsidized loans, you’ll be charged interest from the day the loan is disbursed until it is repaid in full, including in-school, grace, and deferment periods. You may choose to pay the interest during these periods, or it can be capitalized.

Is there a charge for these loans?
You’ll pay fees of up to 4 percent of the loan. These fees are deducted proportionately from each disbursement of your loan. For a FFEL Stafford Loan, a portion of this fee goes to the federal government to help reduce the cost of the loans. For a Direct Stafford Loan, all of this fee goes to the government to help reduce the cost of the loans. Also, if you don’t make your loan payments when they’re scheduled, you may be charged collection costs and late fees.

When do I pay back these loans?
After you graduate, leave school, or drop below half time* enrollment, you have six months before you begin repayment. This is called a "grace period." During the grace period on a subsidized loan, you don’t have to pay any principal, and no interest will be charged. During the grace period on an unsubsidized loan, you don’t have to pay any principal, but interest will be charged. You can either pay the interest or it will be capitalized. After you leave school or drop below half time enrollment, you’ll receive information about repayment and will be notified of the date repayment begins. However, you’re responsible for beginning repayment on time, even if you don’t receive this information.

Is it ever possible to postpone payment of my loan?
Yes. Under certain circumstances, you can receive a deferment or forbearance on your loan. A deferment allows you to temporarily postpone payments on your loan. If you have a subsidized loan, you will not be charged interest during the deferment. If your loan is unsubsidized, you will be responsible for the interest on the loan during the deferment. If you don’t pay the interest as it accrues, it will be capitalized. For information on deferments for loans disbursed prior to that date, Direct Stafford Loan borrowers should contact their Direct Loan Servicing Center.

FFEL Stafford borrowers should contact the lender or agency holding the loans. You can’t receive a deferment if your loan is in default.

If you are temporarily unable to meet your repayment schedule but are not eligible for a deferment, you may receive forbearance for a limited and specified period. During forbearance, your payments are postponed or reduced. Whether your loans are subsidized or unsubsidized, you will be charged interest. If you don’t pay the interest as it accrues, it will be capitalized. For example, you may be granted forbearance if you are

  • unable to pay due to poor health or other unanticipated personal problems.
  • serving in a medical or dental internship or residency.
  • serving in a position under the National Community Service Trust Act of 1993 (forbearance may be granted for this reason for a Direct or FFEL Stafford Loan, but not for a Direct or FFEL PLUS Loan).
  • obligated to make payments on certain federal student loans that are equal to or greater than 20 percent of your monthly gross income.

Deferments and forbearances are not automatic. If you have a Direct Stafford Loan, you must contact your Direct Loan Servicing Center to request either option. If you have a FFEL Stafford Loan, you must contact the lender or agency that holds your loan. For either program, you may have to provide documentation to support your request. You must continue making scheduled payments until you receive notification that the deferment or forbearance has been granted.

Examples of Typical Beginning Payments for Direct Loan Repayment Plans

Monthly and Total Payments Under Different Repayment Plans
Total Debt When Borrower Enters
Repayment
Standard2 Extended Graduated Income Contingent3
(Income $25,000)
Single Married/HOH4
Per
Month
Total
Pmt
Per
Month
Total
Pmt
Per
Month
Total
Pmt
Per
Month
Total
Pmt
Per
Month
Total
Pmt
$  2,500 $  50 $  3,074 $  50 $  3,074 $  25 $  4,029 $  23 $  4,462 $  22 $  4,514
5,000 61 7,359 55 7,893 35 8,655 46 8,925 44 9,028
7,500 92 11,039 82 11,839 63 12,982 69 13,387 66 13,541
10,000 123 14,718 97 17,463 70 19,085 92 17,850 88 18,055
15,000 184 22,078 146 26,194 105 28,628 137 26,775 131 27,083
  1. Note: Payments are calculated using the maximum interest rate of 8.25% for student borrowers.
  2. Equal and fixed monthly payments ($50 minimum).
  3. Assumes a 5% annual income growth (Census Bureau).
  4. HOH is Head of Household. Assumes a family size of two.

Can my loan be discharged (cancelled)?
Yes, in certain circumstances. A discharge releases you from all obligation to repay the loan. Your loan can’t be discharged because you didn’t complete the program of study at the school (unless you were unable to complete the program because the school closed), didn’t like the school or the program of study, or didn’t obtain employment after completing the program of study.

Repayment assistance (not a discharge but another way to satisfy your obligation to repay) may be available if you serve in the military. For more information, contact your recruiting officer.

For more information about discharge or repayment assistance, Direct Stafford Loan borrowers should contact the Direct Loan Servicing Center. FFEL Stafford Loan borrowers should contact the lenders or agencies that hold their loans.

Direct Stafford Loans
The processes of applying for a loan as well as the methods of repayment differ somewhat for Direct Stafford Loans and FFEL Stafford Loans.

How do I apply for a Direct Stafford Loan?
First, you must complete the 1998-99 Free Application for Federal Student Aid (FAFSA) or Renewal FAFSA. After your FAFSA is processed, your school will review the results and will inform you of your loan eligibility.

You must then complete the promissory note provided by your school or the Direct Loan Servicing Center. Remember, the promissory note* is a legal document requiring you to repay the loan. Read it carefully before you sign.

How do I pay back my Direct Stafford Loan?
The Direct Loan Program offers four repayment plans that are available to borrowers of Direct Stafford Loans. The repayment plans will be explained in more detail during entrance and exit counseling sessions at your school. The chart at the top of the page shows estimated monthly payments for various loan amounts under each of the plans.

In some cases it may be beneficial for you to consolidate one or more of your Direct Stafford Loans into a Consolidation Loan. You may choose one of the following repayment plans

  • The Standard Repayment Plan requires you to pay a fixed amount each month—at least $50—for up to 10 years. The length of your actual repayment period will depend on your loan amount.
  • The Extended Repayment Plan allows you to extend loan repayment over a period that is generally 12 to 30 years, depending on your loan amount. Your monthly payment may be lower than it would be if you repaid the same total loan amount under the Standard Repayment Plan, but you may repay a higher total amount of interest over the life of your loan because the repayment period may be longer. The minimum monthly payment is $50.
  • Under the Graduated Repayment Plan, your payments will be lower at first and then increase generally every two years. The length of your repayment period will generally range from 12 to 30 years, depending on your loan amount. Your monthly payment may range from 50 percent to 150 percent of what it would be if you were repaying the same total loan amount under the Standard Repayment Plan. However, you’ll repay a higher total amount of interest because the repayment period is longer than it is under the Standard Repayment Plan.
  • The Income Contingent Repayment Plan bases your monthly payment on your yearly income, family size, and loan amount. As your income rises or falls, so do your payments. After 25 years, any remaining balance on the loan will be forgiven, but you may have to pay taxes on the amount forgiven. Loan payments are made to the U.S. Department of Education.

For more information on repayment options, write for a copy of the Direct Loans Repayment Book at the following address:

Federal Student Aid Information Center
P.O. Box 84
Washington, DC 20044

FFEL Stafford Loans
The processes of applying for a loan as well as the methods of repayment differ somewhat for Direct Stafford Loans and FFEL Stafford Loans.

How do I apply for a FFEL Stafford Loan?
First, you must complete the 1998-99 Free Application for Federal Student Aid (FAFSA) or Renewal FAFSA. After your FAFSA is processed, your school will review the results and will inform you about your general loan eligibility.

Next, you must complete the Federal Stafford Loan Application and Promissory Note, available from your school, a lender, or your state guaranty agency. Remember, the promissory note is a legal document requiring you to repay the loan. Read it carefully before you sign.

Finally, you must take your completed Federal Stafford Loan Application and Promissory Note to the school you plan to attend. After the school completes its portion of the application, you (or the school on your behalf) must send the application to a lender for evaluation.

How can I find a lender?
Contact your school or the guaranty agency* that serves your state. For your agency’s address and telephone number, and for more information about borrowing, call the Federal Student Aid Information Center’s toll-free number:

1-800-4-FED-AID (1-800-433-3243)

How do I pay back my FFEL Stafford Loan?
There are three repayment plans that are available to borrowers of FFEL Stafford Loans if your first FFEL Program Loan was disbursed on or after July 1, 1993. All the repayment plans require you to repay the loan within 10 years. The repayment plans will be explained in more detail during entrance and exit counseling sessions at your school.

The chart below shows examples of estimated monthly payments for various loan amounts under each of the plans. Aspects of these repayment plans will vary by lender. Check with the lender for complete information. In some cases it may be beneficial for you to consolidate one or more of your FFEL Stafford Loans into a Consolidation Loan.

You may choose one of the following repayment plans:

  • A Standard Repayment Plan requires you to pay a fixed amount each month—at least $50 or the interest that has accrued.
  • Under a Graduated Repayment Plan, your payments will be lower at first and then increase over time.
  • No scheduled payment may be more than three times greater than any other of your scheduled payments.
  • An Income-Sensitive Repayment Plan bases your monthly payment on your yearly income and your loan amount. As your income rises or falls, so do your payments. No single required payment may be more than three times greater than any other of your required payments. Each of your payments must at least equal the interest accrued on the loan between scheduled payments.

Examples of Typical Beginning Payments for FFEL Repayment Plans

Monthly and Total Payments Under Different Repayment Plans
Total Debt When Borrower Enters
Repayment
Standard2 Extended Graduated Income Contingent3
(Income $25,000)
Single Married/HOH4
Per
Month
Total
Pmt
Per
Month
Total
Pmt
Per
Month
Total Pmt Per
Month
Total Pmt Per
Month
Total Pmt
$  2,500 $  50 $  3,074 $  50 $  3,074 $  25 $  4,029 $  23 $  4,462 $  22 $  4,514
5,000 61 7,359 55 7,893 35 8,655 46 8,925 44 9,028
7,500 92 11,039 82 11,839 63 12,982 69 13,387 66 13,541
10,000 123 14,718 97 17,463 70 19,085 92 17,850 88 18,055
15,000 184 22,078 146 26,194 105 28,628 137 26,775 131 27,083
  1. Note: Payments are calculated using the maximum interest rate of 8.25% for student borrowers.
  2. Equal and fixed monthly payments ($50 minimum).
  3. Interest payments are for the first 48 months only; equal and fixed payment for the last 72 months.
  4. Assumes a 5% annual income growth (Census Bureau). Payment equals lesser of interest only or 4% of income. If payment amount is less than under the Standard Repayment Plan amount in the year, the term is extended by one year. The maximum number of extensions is five. That is, the maximum term is 15 years, the last 10 of which would be under the Standard Repayment Plan (equal or fixed).




      

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The information presented on the NYSFAAA Website is provided as a service from the New York State Financial Aid Administrators Association to our constituents and represents our best efforts to assist students and their families in pursuing funding for higher education. NYSFAAA is a volunteer association of financial aid professionals representing the various institutions of higher education in New York State. We have collected information we believe to be important and reputable in finding and obtaining financial aid resources; however, we assume no liability for the use of this information. The New York State Financial Aid Administrator's Association, Inc (NYSFAAA) does not receive any money, gifts or compensation, related to educational lending activities, from any "lending institution" as defined in S620(8)a and S620(8)b of New York State Education Law. Hence, NYSFAAA does not meet the definition of "lending institution" as defined in S620(8)c of New York State Education Law. Therefore, institutions of higher education in New York and employees of those institutions are not subject to any potential conflicts of interest or legal restrictions under NYS Education Law in their interactions with NYSFAAA.*
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