Federal Stafford Loans: Everything You Need to Know
Federal Stafford Loans are a type of student loan offered by the U.S. Federal Government. These student loans are oftentimes referred to as Direct Loans or Direct Stafford Loans and are available to students pursuing higher education at four year universities and colleges, community colleges, as well as trade, career, or technical schools.
If you are applying for student loans or have student loans, chances are that you have encountered the Stafford Loan program. In this guide, we’ll be breaking down the Stafford Loan program so you know everything you need to know!
- Unsubsidized vs. Subsidized Stafford Loans
- Direct Loan Eligibility
- Stafford Loan Deadlines
- Direct Stafford Loan Borrowing Limits
- Federal Stafford Loan Interest Rates
- How to repay your federal Stafford Loans
Unsubsidized vs. Subsidized Stafford Loans
Stafford Loans actually come in two different types: unsubsidized Stafford Loans and subsidized Stafford Loans. The key difference between unsubsidized and subsidized loans is with the interest that accumulates when you are in school, a period of deferment, or in the immediate months after graduation.
When you have a subsidized Stafford Loans, the federal government will pay the interest on your loans for you in the aforementioned situations. So when you are in school in at least a half-time capacity, all of the student loan interest will be paid by the government. Remember, this is just the student loan interest and not the principle, which you will still be responsible for repaying.
Unsubsidized Student Loans do not enjoy the same treatment, and your interest will immediately start to accumulate when you are in school. This is the main reason why subsidized Direct Stafford Loans are preferable to unsubsidized Direct Stafford Loans.
If you are a prospective graduate student, note that you will only be able to access Direct Unsubsidized Student Loans as the subsidized loans are only available for undergraduates.
Direct Loan Eligibility
Direct Loan eligibility require two main things from students:
- Students must be enrolled in higher education that will lead to a degree or certificate
- Students must complete and submit the Free Application for Federal Student Aid or FAFSA
Once you have completed and submitted the FAFSA, you will just have to be accepted to college, university, or educational programs. Once you are accepted, you will receive a financial aid award letter outlining your various options for paying for college (including any Direct federal student loans).
Subsidized Direct Loan Eligibility
If you read your financial aid letter and only see unsubsidized Stafford Loans, know that eligibility for the subsidized loans is based on demonstrated financial need (as assessed by the data included in your FAFSA).
Unsubsidized student loans have no financial need requirement, so as long as you submit your FAFA and are going to be attending a postsecondary degree or certificate program, you should be good to go.
Stafford Loan Deadlines
The Stafford Loan deadline is actually just the FAFSA deadline as the FAFSA is the application you are using to apply for the loan. It is essential that you submit your FAFSA by the deadline (and remember the FAFSA opens up on October 1st each year, which gives you many months to finish the application).
Direct Stafford Loan Borrowing Limits
One of the most common questions students ask about Stafford Loans is “how much money can I get?”
The amount of money you can receive from a federal Stafford Loan will depend on two factors:
- Academic Year (are you a first year, second year, etc.)
- Whether you are taking out a subsidized student loans or an unsubsidized loan
For Subsidized Student Loans
If you are taking out subsidized student loans, your borrowing limit will be the same each year:
| Academic Year | Subsidized Direct Loan Amount |
| First year | $2,000 |
| Second year | $2,000 |
| Third year (and beyond) | $2,000 |
For Unsubsidized Student Loans
Meanwhile, unsubsidized Direct loan borrowing limits increase each year:
| Academic Year | Unsubsidized Direct Loan Amount |
| First year | $3,500 |
| Second year | $4,500 |
| Third year (and beyond) | $5,500 |
Remember, students can “stack” these loans together, so if you qualify for both types of Direct Loans, your borrowing limits will actually be $5,500 as a first year, $6,500 as a second year, and $7,500 as a third year (and beyond).
How to qualify for additional loan dollars
Generally, the next loan option after Direct Loans are the Parent PLUS loans. However, if your parents do not qualify for these loans, you may be eligible to receive additional unsubsidized loans from the U.S. Department of Education.
Federal Stafford Loan Interest Rates
Stafford Loan interests rates are set by the federal government each year on June 1st. The current interest rates for Direct Stafford Loans are:
| Interest Rate | |
| Undergraduate (both subsidized and unsubsidized Direct Loans) | 2.75% |
| Graduate (unsubsidized Direct Loans) | 4.30% |
How to repay your federal Stafford Loans
Students who take out federal Direct Loans, both subsidized and unsubsidized, have a variety of repayment options available to them including:
- Standard Repayment
- Graduated Repayment Plan
- Extended Repayment Plan
- Revised Pay As You Earn Repayment Plan
- Pay As You Earn Repayment Plan
- Income-based Repayment Plan
- Income-Contingent Repayment Plan
- Income-sensitive Repayment Plan
Different repayment plans have different pros and cons depending on your financial situation, goals, and whether or not you have private loans. We recommend that all students spend some time researching their options so they can pick the best repayment plan.
Keep reading: Navigating different types of student loans
