What Is a Stafford Loan?

Stafford loans a𒉰re a type of federal, fixed-rate student loan available to college and ꧒university undergraduate, graduate, and professional students attending school at least half-time. Federal student loans were called Stafford loans under a previous program run by the Federal Family Education Loan Program.

Effective July 1, 2010, all new federal student loans started coming directly from the U.S. Department of Education under the William D. Ford Federal Direct Loan Program. Some schools stꩵill refer to direct loans as Stafford loans, so the terms are typically used interchangeably.

Direct loans are intended to supplement existing personal and family resources available for higher education costs, including scholarships, grants, and work-study. Federal direct loans can be used to pay for the costs of education, including tuition, room and board, books, and other education-related expenses.

How a Stafford Loan Works

Federally guaranteed student loans can be either subsidized (subsidized Stafford loans or direct subsidized loans), which means the federal government pays the interest during certain periods, or unsubsidized (unsubsidized Stafford loans or direct unsubsidized loans).

Direct subsidized loans are only available to undergraduates with demonstrated financial need, whereas both undergraduate and graduate students can take out direct unsubsidized loans and financial need isn't a factor. Depending on their circumstances, students may borrow larger amounts, but the maximum amounts that may be subsidized are $3,500 per year for freshmen, $4,500 per year for sophomores, $5,500 per year for juniors, and $5,500 per year for seniors or fifth-year students. The student's dependency status also affects how much they can borrow.

Students must first be accepted into a college or university accredited to accept federal loans and complete the Free Application for Federal Student Aid (FAFSA) prior to applying for the loan. In order to use any federal loan to pay for your education, you must be enrolled in a program offered by an accredited school. Search to see whether the school you're considering is accredited for federa🔜l loans.

Interest rates on Stafford loans are usually lower than those on private loans, there's no credit check for most federal student loans, and repayment doesn't begin until after a student leaves college or drops below half-time.

The Bottom Line

Stafford or federal direct loans are one of the lowest cost borrowing options for students. With subsidized and non-subsidized options, eligibility is based on need and determined by the results of your FAFSA. Although Stafford loans were discontinued in 2010, the term lingers and is often still used to refer to federal direct loans.