If you have federal student loans, there is a good chance that some of them are Direct Stafford Loans — the most common type of federal student loans.
Direct Stafford Loans are offered by the US Department of Education. They are available to undergraduate, graduate and professional students enrolled at least half-time in school. Stafford loans have a six-month grace period from the time the borrower leaves school or drops below half-time enrollment until they are required to begin repayment. Interest rates on Direct Stafford Loans are fixed for the life of the loan. Each loan disbursement carries a fee currently at 1.062 percent of the loan amount for disbursements made from October 1, 2018 until October 1, 2019.
There are two types of Direct Stafford Loans: Subsidized and Unsubsidized.
Subsidized Stafford Loans are available to only undergraduate students and are based on financial need. The government covers the interest payments while you are enrolled in school at least half-time, during the six-month grace period and during periods of deferment.
However, subsidized loans are limited both in the amount you can borrow per year and by the number of academic years you can receive them. Students can borrow:
- up to $3,500 for their first year
- up to $4,500 for their second year
- up to $5,500 for their third year and beyond
- no more than $23,000 total
First-time borrowers on or after July 1, 2013, cannot receive subsidized loans for more than 150 percent of the published length of their degree program. This is referred to as the "maximum eligibility period." For instance, if you are enrolled in a four-year degree program, the maximum period for which you can receive subsidized loans is six years (150 percent of four years = six years). The published length of your degree program can usually be found in your school's catalog.
Unsubsidized Stafford Loans are available to undergraduate, graduate and professional students and are not based on financial need. Interest on unsubsidized loans is added to your loan balance while you are in school, during the six-month grace period and during periods of deferment. However, you can choose to pay the interest instead of letting it accrue, which will reduce the amount of interest you'll pay over the life of the loan.
Unsubsidized loans are limited in the amount you can borrow per year and in total. Dependent students can borrow:
- up to $5,500 for their first year
- up to $6,500 for their second year as undergraduates
- up to $7,500 for their third year and beyond
- no more than $31,000 overall
Independent students can borrow up to:
- $57,500 for their undergraduate program
- $138,500 for graduate and professional studies
If the total amount borrowed over the course of your education reaches the aggregate loan limit, you cannot borrow additional Direct Stafford Loans. However, if you repay some of the loans to bring the outstanding balance below the aggregate limit, you can borrow again up to the loan limit.
To apply for subsidized and unsubsidized loans, you must complete a Free Application for Federal Student Aid (FAFSA®). Your school will use the FAFSA to determine your eligibility for financial aid. Each school where you've been accepted will send an award letter that details your financial aid package and the amount you are eligible to receive.
FAFSA is a registered service mark of the U.S. Department of Education.