There are three different programs available in this family of loans:
- Federal Subsidized Stafford Loan
- Federal Unsubsidized Stafford Loan
- Federal Parent Loan for Students (PLUS)
The main difference between subsidized and unsubsidized Stafford Loans is that the subsidized is available only to those who can demonstrate financial need, and the interest is paid to the lender by the government while the student attends school at least half time. With the unsubsidized Stafford, the student pays the interest while enrolled.
If you encounter words you don’t understand, visit our loan terminology page and reference it while you read.
Subsidized Stafford Loans
Who is Eligible?
To be eligible for the Federal Subsidized Stafford Loan, you must attend school at least half time and be determined to have financial need. The financial aid administrator at the school you attend or plan to attend will assist you.
You also must meet certain conditions to receive federal aid.
How Much Money Can You Get?
Depending on whether you are a dependent or independent (self-supporting) student, you can borrow the following amounts for your education:
for Subsidized & Unsubsidized Stafford Loans
| Borrower’s Academic level | Dependent | Independent |
|---|---|---|
| Undergraduate, 1st Year | $2,625 | $6,625 |
| Undergraduate, 2nd Year | $3,500 | $7,500 |
| Undergraduate, 3rd Year & on | $5,500 | $10,500 |
| Maximum Debt Allowed | $23,000 | $46,000 |
| Graduate or Professional Students | $8,500 | $18,500 |
| Maximum Debt Allowed* | $65,500 | $138,500 |
*Including all undergraduate Stafford Loans.
All the above annual borrowing amounts assume enrollment in a program that is at least one academic year long. If your enrollment period is less than a full academic year, your annual borrowing limits will be smaller. For instance, a first year undergraduate student enrolled in a program that is equal to two thirds of an academic year would have a maximum borrowing limit of $1,750.
More than 500 private lenders make the Federal Stafford Loan available to Minnesota students. If you are having difficulty locating a lender, contact the Great Lakes Higher Education Guaranty Corporation at (651) 290-8795 or (800) 366-0032.
You may be required to pay an insurance premium of one percent, also known as a guarantee fee, which is deducted from each disbursement of your loan amount. On a typical loan of $2,625, a one percent guarantee fee would equal $26.25.
You may also pay an additional one-time, three percent origination fee to the lender. This fee deducted proportionately from each disbursement of your loan amount. For example, for a loan of $2,625, an origination fee of $78.75 will be deducted.
After you sign a promissory note, your loan will be sent to your school, either by electronic funds transfer or by check made payable to both you and your school. Most loans are disbursed to you in two or more payments, rather than a lump sum. Because of this, you should plan your personal finances accordingly.
For more information, contact your financial aid administrator or your lender.
What’s the Application Process?
You apply any time during the year, but obtaining a loan may take several weeks. There are two basic methods of application — paper and electronic. Your school will tell you which method it prefers. Each method begins with filing the Free Application for Federal Student Aid (FAFSA).
If a need analysis has already been performed for you by the school, you might arrange a loan in two to four weeks. If no need analysis has been done, it could take several months. Therefore, be sure to:
- Plan ahead and ask your school what application method it prefers, and how long it will take to apply.
- Find out whether you’re eligible for a Federal Pell Grant. This is required before your school can process the loan application and disburse loan funds.
- Be sure you understand the loan repayment terms.
The interest rates on federal Stafford and Direct loans depend on when you took out the loan:
- Interest rates for July 1, 2006 to June 30, 2007 are 6.8 percent while the student is enrolled in school and during repayment.
- Interest rates for repayment of loans taken out before July 1, 2006 vary depending on the date of the first disbursement, but cannot exceed 8.25 percent. You are notified as the interest rate changes throughout the life of your loan(s).
The federal government will pay (or subsidize) the interest on the loan for you until the start of the repayment period. In most cases, you must begin repaying the loan six months after you leave school or drop below half-time status. Typically, you have up to 10 years to complete repayment.
The amount of your payment depends on the size of your debt. However, you will pay at least $50 per month in principal and interest. Under certain conditions you may defer (postpone) payments for up to three years. Ask your financial aid administrator, your lender or read your promissory note to obtain information about deferring payment.
Some borrowers can repay their loans based on a “graduated” or “income sensitive” repayment. This option considers your financial situation when determining the monthly payment. For more information, ask your lender or servicer.
Unsubsidized Stafford Loans
For students without demonstrated financial need, an unsubsidized Federal Stafford Loan is available
Borrowers of the Unsubsidized Stafford Loan are required to pay interest on the loan while in school. You may be charged a one percent guarantee fee and a three percent origination fee that will be subtracted from each disbursement of your loan.
You may make monthly or quarterly interest payments to your lender — or you may choose to have your interest added to the principal of the loan. This is called “capitalization.” This can occur during:
- The grace period — the time before beginning repayment.
- Periods of authorized deferment — postponement.
- Periods of forbearance — authorized delay in loan principal payment.