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Stafford Loans

Stafford loans come in one of two forms: (1) a FFEL loan, which is a loan from a private loan such as a bank or credit union; (2) Direct Loans, where the federal government gives money to the school that then the school pays you. Stafford loans that are made via a ban or credit union are repaid to the lender. Stafford Loans that you receive from the school are repaid directly to the federal government.

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Unlike Federal Perkins Loans, Stafford Loans have a variable interest rate. A Stafford loan can be subsidized or unsubsidized. Unsubsidized loans require you to begin the repayment process as soon as you receive the loan (there is no "grace period". Subsidized loans allow you to defer payment until 6 months after you graduate or drop below half time enrollment, or under certain other circumstances, but these types of deferrment must be applied for, and are not automatic. The federal government subsidizes the interest during any deferrment period.

You must meet eligibility requirements to get a Stafford Loan. Eligibility is determined based on your "Expected Family Contribution" (EFC). This is a calculation of how much money the government believes your family is able to pay. To find out what your EFC is, you need to begin the application process by submitting a FAFSA form. About 6 weeks after you submit this form (or 2-3 weeks if you submit it by the web) you will get a "Student Aid Report" that will show you your eligibility.

The amounts of money that you can obtain from a Stafford Loan depend on where you are in your education, as per the following table:

YearDependent UndergradIndependent UndergradGraduate
$2,625$6,625 - No more than $2,625 of this may be in subsidized loans$18,500 - No more than $8,500 of this may be in subsidized loans$18,500 - No more than $8,500 of this may be in subsidized loans
$3,500$7,500 - No more than $3,500 of this may be in subsidized loans$18,500 - No more than $8,500 of this may be in subsidized loans$18,500 - No more than $8,500 of this may be in subsidized loans
$5,500$10,500 - No more than $5,500 of this may be in subsidized loans$18,500 - No more than $8,500 of this may be in subsidized loans$18,500 - No more than $8,500 of this may be in subsidized loans
$23,000$46,000 - No more than $23,000 of this may be in subsidized loans$138,500 - No more than $65,500 of this may be in subsidized loans$138,500 - No more than $65,500 of this may be in subsidized loans

Note that the graduate debt limit includes Stafford Loans received for undergraduate loans.

Stafford Loan amounts must first be used to pay you tuition, fees, and room and board. Any remaining amounts will then be sent to you by check. First time students getting their first Stafford Loan will not receive their loan until 30 days after you start classes. The reason for this is that students that withdraw before the end of 30 days of classes then do not need to repay any part of the loan, since they will not have received it yet. However, you may owe the school withdrawal or partial tuition fees, however, if you do withdraw.

The interest rate on Stafford Loans is variable. The rate for the period from July 1, 2003 to June 30, 2004 was 3.42 percent. The rate may vary as general market rates fluctuate, but will not exceed 8.25 percent. You will also need to pay a fee at the time you obtain the loan, up to 4 percent of the total loan amount.

Interest paid on a Stafford Loan can be used as a deduction on your federal tax return. The maximum tax deduction allowed per year is $2500. For more information, refer to the IRS web site as http://www.irs.gov.

Your school is required to notify you in writing of each deposit to your account (or to send you a check). You may cancel the loan at any time by providing a notice in writing to your school. Once you provide such notice, you will receive no more funds, and if you provide such notice within 14 days of the last deposit to your account (or the date of the last check), you may return that last deposit (or check). All other funds you may have received prior to that, however, still constitute a loan and still need to be repaid.

Source: The Student Guide, published by the US Department of Education: Note that federal financial aid programs are subject to change. Check with the school(s) of your choice to get the very latest information.