What is a Stafford Loan?
“Federal Stafford loans” are the name of an older version of Department of Education student loans. They have since been replaced by federal Direct loans, although the terms are sometimes used interchangeably.
A “Stafford loan” (or really, a Direct loan) can help cover essential educational costs for undergraduate, graduate and professional students.
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Understanding federal student loans
You have several options for federal student loans, such as subsidized, unsubsidized and PLUS loans. Here’s a breakdown of each loan’s features, including interest rates and fees for the 2023-24 school year.
| Loan type | Who can apply | Interest rate | Origination fee | Annual loan limit |
|---|---|---|---|---|
| Direct (Stafford) subsidized loans | Undergraduate students with financial need | 5.50% | 1.057% | Up to $5,500 |
| Direct (Stafford) unsubsidized loans | Undergraduate, graduate or professional students | 5.50% for undergraduate students 7.05% for graduate and professional students | 1.057% | Up to $7,500 (dependent students) Up to $12,500 (independent undergrads) Up to $20,500 (graduate and professional students) |
| Direct PLUS loans | Graduate/professional students and parents of dependent undergraduate students | 8.05% | 4.228% | Cost of attendance minus other aid received |
| Direct consolidation loans | Most borrowers with federal student loans | Weighted average interest rate of all combined loans | None | N/A |
The key difference between subsidized and unsubsidized federal student loans is how interest is handled. With subsidized “Stafford” loans (subsidized Direct loans), the federal government pays the interest when you’re enrolled at least half-time in school, and during any grace periods or deferments.
However, the borrower is responsible for all interest on unsubsidized “Stafford” loans, which starts accruing once the loan is disbursed. Consider making interest payments on your unsubsidized loans while in school to avoid capitalized interest, where interest charges are added to your principal balance.
Eligibility requirements for Stafford loans (Direct loans)
The annual rates and fees for federal direct loans remain the same for all students, regardless of individual criteria and credit scores.
To be considered for federal financial aid, including Stafford loans (Direct loans), you have to submit the Free Application for Federal Student Aid (FAFSA) every year you plan to attend school. The Department of Education and your school will calculate your financial aid package based on your income, family size, school’s cost of attendance and other factors.
In addition, you’ll need to meet the following criteria:
- Be a U.S. citizen, permanent resident or eligible non-citizen
- Have received a high school diploma or GED
- Be enrolled at least half-time at a school that participates in the Federal Direct Loan Program
- Be enrolled in a program that leads to a degree or certificate awarded by the school
- Not have a student loan default on any existing federal student loans
- Maintain satisfactory academic progress in your college or career program
Note that you’re not obligated to borrow the total amount offered. Even with low-interest rates, federal loans can add up to become a burdensome debt. It’s wise to prioritize scholarships, grants and work-study opportunities first. You can also return unused student loan money if you don’t need it.
How Direct federal loans replaced Stafford student loans
Curious about the history of student loans? The name “Stafford” came from Vermont Sen. Robert Stafford,who helped change the Higher Education Act of 1965. His name was attached to the student loan program as “federal Stafford loans” in 1988.
In 1992, Congress made further amendments to the Higher Education Act of 1965, resulting in the creation of FAFSA and the unsubsidized student loan program. Rep. William D. Ford, a Michigan Democrat, played a crucial role in gaining approval for the Direct loan pilot program.
In 2010, U.S. legislators replaced the Stafford name, and the program became the William D. Ford Federal Direct Loan Program — shortened to “federal Direct loans.”
Meanwhile, Stafford’s name continues to live on, with many schools and financial aid offices using “Stafford loans” and “Direct loans” interchangeably.
Repayment options for Stafford loan (Direct loan) borrowers
Federal Direct loans automatically come with a standard 10-year repayment plan, in which payments are due six months after you drop below half-time enrollment or graduate.
However, you can change your student loan repayment plan if you want a lower monthly payment or a longer repayment term. Here are some options:
- Income-driven repayment (IDR): Your monthly payments will be adjusted based on your family size and annual income.
- Extended repayment: If you have over $30,000 in outstanding direct loans, you can extend your plan up to 25 years, with payments typically lower than the standard repayment plan.
- Graduated repayment: Payments start low and increase every two years, with terms up to 30 years.
- Deferment or forbearance: You can pause your student loan payments for six months to three years or longer, depending on your circumstances. While no interest will accrue for loans in deferment, you will be charged interest for student loans in forbearance.
Are Stafford loans the only option?
Before turning to any type of student loan, it’s best to apply for scholarships and grants for college. A scholarship search tool can help narrow your options based on your field of study, demographics, location and more.
You’ll want to exhaust all federal student loan options before considering other ones — federal loans come with extra government protections, including access to income-driven repayment (IDR) plans and student loan forgiveness programs. However, if you’ve hit the annual or aggregate federal student loan limit and need additional funds, private student loans can help.
You can also investigate income share agreements (ISAs), though weigh the pros and cons first to ensure these are good fit for your situation.
When considering private lenders, be sure to shop around, as rates can vary. Further, unlike federal loans, private lenders will do a credit check — adding a creditworthy cosigner can help unlock the most competitive offers.