Direct Stafford Loans
Direct Stafford Loans are federal student loans that are made available by the Department of Education via the Direct Loan Program.
They were previously offered as part of both the Direct Loan Program, and as part of the Federal Family Education Loan Program (FFELP), but after the passing of the Health Care and Education Reconciliation Act of 2010 they are now strictly offered via the Direct Loan Program.
The significance of this is that the Department of Education now acts as the direct lender for all federal student loans, including Stafford Loans, and no longer do private lenders provide federal educational loans to students.
The Two Types of Direct Stafford Loans
There are two specific kinds of Direct Stafford Loans:
- The Direct Subsidized Loan
- The Direct Unsubsidized Loan
Interest does not accrue while attending class at least on what is considered to be a half-time basis, during grace periods, and deferments with the Direct Subsidized Loan, it does with its Unsubsidized counterpart.
The Direct Subsidized Loan is based upon financial need, while students do not have to demonstrate financial need in order to get a Direct Unsubsidized Loan.
These are the two main differences between the Direct Subsidized, and Unsubsidized Stafford Loans, and both can be used in conjunction during any particular school year for both undergraduate, and graduate students.
Applying and Disbursement
Applying for these types of loans is easy, and disbursement is commonly done at the beginning of each semester through your school:
- Apply via the FAFSA
- Must complete an MPN (Master Promissory Note) when receiving for the first time
- Disbursed through school typically in two installments
- Loan installments cannot total more than half of the total loan amount
Available Loan Amounts and Aggregate Limits
Taken from studentaid.ed.gov:
| Year | Dependent Undergraduate Student (except students whose parents are unable to obtain PLUS Loans) | Independent Undergraduate Student (and dependent students whose parents are unable to obtain PLUS Loans) | Graduate and Professional Degree Student |
| First Year | $5,500—No more than $3,500 of this amount may be in subsidized loans. | $9,500—No more than $3,500 of this amount may be in subsidized loans. | $20,500—No more than $8,500 of this amount may be in subsidized loans. |
| Second Year | $6,500—No more than $4,500 of this amount may be in subsidized loans. | $10,500—No more than $4,500 of this amount may be in subsidized loans. | |
| Third and Beyond (each year) | $7,500—No more than $5,500 of this amount may be in subsidized loans. | $12,500—No more than $5,500 of this amount may be in subsidized loans. | |
| Maximum Total Debt from Stafford Loans When You Graduate (aggregate loan limits) | $31,000—No more than $23,000 of this amount may be in subsidized loans. | $57,500—No more than $23,000 of this amount may be in subsidized loans. | $138,500—No more than $65,500 of this amount may be in subsidized loans. The graduate debt limit includes Stafford Loans received for undergraduate study. |
Interest Rates and Fees
Interest rates for subsidized loans differ with regard to status as either an undergraduate, or graduate student:
- Subsidized Loans for Undergraduates: 3.4%
- Subsidized Loans for Graduate and Professional Students: 6.8%
Interest rates for unsubsidized loans remain consistent for both undergraduate, and graduate students:
- Unsubsidized Loans for Undergraduate, and Graduate students: 6.8%
There is a 1.0% loan fee on all Direct Subsidized, and Unsubsidized Loans that is based on the total amount of each loan you receive.
Paying Back Direct Stafford Loans
Paying back Direct Stafford Loans is not unlike repaying other types of education loan funding, and you will have to provide a monthly payment to a particular loan servicer that is chosen by the Department of Education.
Quick facts about paying back Direct Stafford Loans:
- Loan terms between 10 and 25 years
- No payments required while maintaining an “in-school” status
- Six month grace periods
- Deferment and Forbearance time available
- Eligibility for a Direct Consolidation Loan
In general I would say that students are given flexible repayment terms with these types of education loans, with an abundance of repayment benefits such as deferment and forbearance, and an ability to modify their loan term and monthly payment amount with regard to income post-graduation.
Final Thoughts on Federal Stafford Loans
These are the cornerstone federal student loans that most students receive at one point or another during their college career, and when utilized properly can help provide valuable financial aid to students with financial need who are determined to get a college degree.
The only real downside to these types of federal education loans in my opinion is their capped loan amounts that can restrict students who need a substantial amount of federal aid to pay for school.
These loan amount limits often force students who require additional funding to apply for private student loans, which can cost more, and have less flexible repayment terms when all is said and done.
Regardless, they are great college loans to receive, and I recommend that students submit their FAFSA as early as possible in order to increase their likelihood of getting the maximum amount of aid possible via Stafford Loan funding.
