Stafford Loans: Frequently Asked Questions

Loan forgiveness and fixed interest rates are two Stafford benefits.

By SHARE

Updated 7/1/08

  1. How much can I borrow from the Stafford program?
  2. How much do Stafford loans cost?
  3. Where can I get a Stafford loan?
  4. How do I get a Stafford loan?
  5. Does every student get approved for a Stafford loan?
  6. How is the credit crunch affecting Stafford loans?
  7. Are Stafford loan payments tax deductible?
  8. When do I have to start repaying my Stafford loan?
  9. What happens if I lose my job or get into other financial trouble?
  10. What are the advantages of a Stafford loan?
  11. What are the downsides of Stafford loans?

  12. How much can I borrow from the Stafford program? *Updated


    Undergraduates can borrow least $5,500 a year, but no more than $12,500 a year. Students who are financially dependent on their parents will be limited to loans of no more than $5,500 in the first year, $6,500 in the second year, and $7,500 annually in the remaining undergraduate years. Dependent students whose parents have been rejected for a PLUS loan can borrow extra money through the Stafford program. Dependent students are not allowed to borrow more than $31,000, in total through the Stafford program, during undergraduate studies. Students who are independent can borrow as much as $9,500 in the first or freshman year, $10,500 in the second or sophomore year, and $12,500 annually during their remaining school years. These students cannot borrow more than a total of $57,500, however.
    Back to top How much do Stafford loans cost? *Updated


    Students who qualify as needy can get "subsidized" Stafford loans that don't charge any interest while they are in school then charge a maximum fixed rate of 6 percent after graduation. But many lenders add up to 2 percentage points in fees, which brings the total annual percentage rate up to 6.4 percent. All other undergraduates can get "unsubsidized" Stafford loans, which charge a maximum fixed rate of 6.8 percent. If a lender charges the maximum 2 percentage points in fees, the total annual percentage rate is actually 7.25 percent. While those who receive an unsubsidized Stafford don't have to make payments on their loans while they are in school, the interest keeps building up. So by the time they graduate, a $3,500 freshman loan has typically ballooned to more than $4,500
    Back to top Where can I get a Stafford loan? *Updated


    It depends. If your college requires all of its students to borrow directly from the federal government, you have to apply through your financial aid office, which will send your application directly to the Department of Education. If your college allows you to shop for a loan, it may give you a "preferred lender" list of companies it likes to do business with. While new rules require schools to do a better job of searching out good loan deals for students, it still pays to search a little on your own. Some (but not all) states' nonprofit lenders offer discounts. You can search for those at the Education Finance Council, or by using U.S. News's web shopping tool, Simple Tuition, which includes many of the lowest cost private and nonprofit lenders.
    Back to top How do I get a Stafford loan?


    You, and if you are not qualified as an independent student, your parents, must fill out a FAFSA, preferably by February 15. (But it's never too late.)
    Back to top Does every student get approved for a Stafford loan?


    Almost. Students who have defaulted on other college loans might be rejected.
    Back to top How is the credit crunch affecting Stafford loans?


    Many counselors are advising parents to line up a lender, apply for their parent loan, and lock in terms as soon as possible. They recommend you get your application in at least a month before classes start. The Project on Student Debt has a Q&A.
    Back to top Are Stafford loan payments tax deductible?


    It depends on your income when you start repaying. Generally, for a single person, education loan interest is deductible only if you earn less than $70,000.
    Back to top When do I have to start repaying my Stafford loan?


    The first bill comes due 6 months after you've left school, whether that's after graduation or after you've dropped out.