Stafford Loan: What It Means, How It Works

What Is a Stafford Loan?

Stafford loans are a type of federal, fixed-rate student loan available to college and university undergraduate, graduate, and professional students attending college at least half-time. These loans are also called direct loans and are given out under the William D. Ford Federal Direct Loan Program. They are intended to supplement existing personal and family resources available for higher education costs, including scholarships, grants, and work-study. Federal direct loans can be used to pay for the costs of education, including tuition, room and board, books, and other education-related expenses.

Federal student loans were called Stafford loans under a previous program run by the Federal Family Education Loan Program. Effective July 1, 2010, all new federal student loans started coming directly from the U.S. Department of Education under the William D. Ford Federal Direct Loan Program (Federal Direct Loans). Both Stafford loans and direct loans refer to the same loans.

How a Stafford Loan Works

Federally guaranteed student loans can be either subsidized (subsidized Stafford loans or direct subsidized loans), which means the federal government pays the interest during certain periods, or unsubsidized (unsubsidized Stafford loans or direct unsubsidized loans).

Direct subsidized loans are only available to undergraduates with demonstrated financial need, whereas both undergraduate and graduate students can take out direct unsubsidized loans and financial need is not a factor. Depending on their circumstances, students may borrow larger amounts, but the maximum amounts that may be subsidized are $3,500 per year for freshmen, $4,500 per year for sophomores, $5,500 per year for juniors, and $5,500 per year for seniors or fifth-year students. The student's dependency status also affects how much they can borrow.

Students must first be accepted into a college or university accredited to accept federal loans and complete the Free Application for Federal Student Aid (FAFSA) prior to applying for the loan. In order to use any federal loan to pay for your education, you must be enrolled in a program offered by an accredited school. Search this site to see whether the school you are considering is accredited for federal loans.

Interest rates on Stafford loans are usually lower than those on private loans, there is no credit check for most federal student loans, and repayment doesn't begin until after a student leaves college or drops below half-time.