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Four Steps to Financial Aid |
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<<< STEP 1: WHAT IS FINANCIAL AID?
Direct and Federal Stafford Loans
Direct and Federal Stafford Loans are the U.S. Department of Education's major form of self-help financial aid.
The terms and conditions of a Federal Direct or a Federal Stafford Loan are similar. The major differences between them
are the source of the loan funds, some aspects of the application process, and the available repayment plans. Under the
Federal Direct Loan Program, your school gets the funds for your loan directly from the
U.S. government. If your school does not participate in Direct Loans, the funds for your loan are lent to you from a
bank, credit union, or other lender that participates in the Federal Stafford Loan Program.
What kinds of Federal Direct and Federal Stafford Loans are available?
Federal Direct and Federal Stafford Loans are either subsidized or unsubsidized.
A subsidized loan is awarded on the basis of financial need. You will not be charged any interest before you begin
repayment or during authorized periods of deferment. The federal government pays your interest during these periods.
An unsubsidized loan charges you interest from the time the loan is disbursed until it is paid in full. If you allow the
interest to accumulate it will be capitalized — that is, the interest will be added to the principal amount of your loan
and additional interest will be based upon the higher amount. This will increase the amount you have to repay. If you
choose to pay the interest as it accumulates, you'll repay less in the long run.
You can receive a subsidized loan and an unsubsidized loan for the same enrollment period.
Who can get a Federal Direct or Federal Stafford Loan?
If you're a student who is enrolled in an eligible program of study at least half time, you may receive a Federal Direct
Loan. Schools select whether they want to participate in the Direct Loan Program or the Federal Stafford Loan Program.
How much can you borrow?
If you're a dependent undergraduate student you can borrow:
- $2,625 if you're a first-year student enrolled in a program of study that is at least a full academic year.
- $3,500 per year if you've completed your first year of study and the remainder of your program is at least a full academic year.
- $5,500 per year if you've completed two years of study and the remainder of your program is at least a full academic year.
If you're an independent undergraduate student or a dependent student whose parents are unable to get a PLUS Loan,
you can borrow:
- $6,625 if you're a first-year student enrolled in a program of study that is at least a full academic year (only
$2,625 of this amount may be in subsidized loans).
- $7,500 per year if you've completed your first year of study and the remainder of your program is at least a full academic
year (only $3,500 of this amount may be in subsidized loans).
- $10,500 per year if you've completed two years of study and the remainder of your program is at least a full academic
year (only $5,500 of this amount may be in subsidized loans).
For periods of study that are less than an academic year, the amounts you can borrow will be less than those listed. Talk to your financial aid administrator to find out how much you can borrow.
Federal Direct and Federal Stafford Loans are not made to students enrolled in programs that are less than one third of an
academic year.
Graduate students:
Generally, if you're a graduate student, you can borrow up to $18,500 each academic year. (Only $8,500
of this amount may be in subsidized loans.)
The amounts given above are the maximum yearly amounts you can borrow in both subsidized and unsubsidized
loans. You may receive less than these yearly maximum amounts if you receive other financial aid that is used to cover a
portion of your cost of attendance.
Generally, the total debt you can have outstanding from all Stafford Loans combined:
- $23,000 as a dependent undergraduate student.
- $46,000 as an independent undergraduate student (only $23,000 of this amount may be in subsidized loans).
- $138,500 as a graduate or professional student (only $65,500 of this amount may be in subsidized loans). The graduate
debt limit includes any Stafford Loans received for undergraduate study.
Your school can refuse to certify your loan application, or can certify a loan for an amount less than you would otherwise be eligible for if the school documents the reason for its action and explains the reason to you in writing. The school's decision is final and cannot be appealed to the U.S. Department of Education.
How will I receive my Stafford Loan?
The loan funds will be sent to your school. In most cases, your loan will be disbursed in at least two installments, and no installment will be greater than half the amount of your loan.
Your loan money must first be used to pay for your tuition, fees, and room and board. If loan money remains, you'll receive the funds by check or in cash unless you give the school written permission to hold the funds until later in the enrollment period.
If you're a first-year undergraduate student and a first-time borrower, your first disbursement cannot be made until 30 days after the first day of your enrollment period. This way, you won't have to repay the loan if you withdraw during the first 30 days of classes. However, you might owe money to the school for a portion of tuition or other fees. This 30-day delayed disbursement requirement does not apply at schools with particularly low loan default rates.
Will I have an opportunity to cancel my loan after I sign the promissory note?
Yes. Your school must notify you in writing whenever it credits your account with your Stafford Loan funds. This notification must be sent to you no earlier than 30 days before and no later than 30 days after the school credits your account. You may cancel all or a portion of your loan if you inform your school that you wish to do so within 14 days after the date that your school sends you this notice, or by the first day of the payment period, whichever is later. Your school can tell you the first day of your payment period. If you receive Stafford Loan funds directly by check, you may refuse the funds by returning the check.
What is the interest rate charged on these loans?
The interest rate on your loan is variable, but it will never exceed 8.25%. The interest rate is adjusted each year on July 1. You'll be notified of interest rate changes throughout the life of your loan.
Congress changed the interest rate calculation for Stafford Loans made on or after July 1, 1998. If you have loans that were first disbursed before July 1, 1998, the interest rate on these loans might be different. For interest rates on a FFEL Stafford Loan, check with your lender. For interest rates on a Direct Stafford Loan, check with the Direct Loan Servicing Center.
If you have subsidized loans, you will not be charged interest while you're enrolled in school at least half time, during
a grace period, or during authorized periods of deferment. Interest will begin to accrue — that is, accumulate — when you
enter repayment.
If you have unsubsidized loans, you'll be charged interest from the day the loan is disbursed until it is repaid in full,
including in-school, grace, and deferment periods. You may choose to pay the interest during these periods, or it can be
capitalized.
Is there a charge or fee for these loans?
You'll pay fees of up to 4% of the loan. The amount of your fees may vary as many lenders offer rebates and discounts on loan fees. These fees are deducted proportionately from each disbursement of your loan. For
a Federal Stafford Loan, a portion of this fee goes to the federal government and a portion goes to the guaranty agency to help reduce
the cost of the loans. For a Direct Stafford Loan, the entire fee goes to the government to
help reduce the cost of the loans. Also, if you don't make your loan payments when they're scheduled, you may be charged
collection costs and late fees.
When do you have to pay back these loans?
After you graduate, leave school, or drop below half-time enrollment, you have six months before you begin repayment. This
is called a grace period.
During the grace period on a subsidized loan, you don't have to pay any principal, and no interest will be charged. During
the grace period on an unsubsidized loan, you don't have to pay any principal, but interest will be charged. You can
either pay the interest or allow it to be capitalized.
After you leave school or drop below half-time enrollment, you'll receive information about repayment and will be notified
of the date repayment begins. However, you're responsible for beginning repayment on time, even if you don't receive this
information.
Are there any tax credits available for paying back student loans?
Two federal income tax credits — dollar-for-dollar reductions in tax liability — are available for higher education expenses. The Hope tax credit worth up to $1,500 per student, is available to first- and second-year students enrolled at least half time. The Lifetime Learning tax credit is a tax benefit equal to 20 percent of a family's tuition expenses, up to %5,000, for virtually any postsecondary education and training, including subsequent undergraduate years, graduate and professional schools, and even less than half-time study.
For more information on the Hope and Lifetime Learning tax credits, and other tax benefits for postsecondary students, visit www.ed.gov/updates/97918tax.html or see the Internal Revenue Service's (IRS) Publication 970. You can get a copy of Publication 970 Tax Benefits for Higher Education by calling 1-800-TAX-FORM (1-800-829-3676). You can also view or download the publication from the internet at www.irs.gov/prod/forms_pubs/.
Interest that you pay on your student loans might be tax deductible.
Is it ever possible to postpone repayment of my loan?
Under certain circumstances, you can receive a deferment or forbearance on your loan. A deferment allows you to
temporarily postpone payments on your loan. If you have a subsidized loan, you will not be charged interest during the
deferment. If your loan is unsubsidized, you will be responsible for the interest on the loan during the deferment. If you don't pay the interest as it accrues, it will be capitalized and increase the amount you will have to pay. You
can't receive a deferment if your loan is in default.
If you are temporarily unable to meet your repayment schedule but are not eligible for a deferment, you may receive
forbearance for a limited and specified period. During forbearance, your payments are postponed or reduced. Whether your
loans are subsidized or unsubsidized, you will be charged interest. If you don't pay the interest as it accrues, it will
be capitalized.
For example, you may be granted forbearance if
- You are unable to pay due to poor health or other unanticipated personal problems.
- You are serving in a medical or dental internship or residency.
- You are serving in a position under the National Community Service Trust Act of 1993.
- You are obligated to make payments on certain federal student loans that are equal to or greater than 20 percent of your monthly gross income.
Deferments and forbearances are not automatic. If you have a Federal Direct Loan, you must
contact the Direct Loan Servicing Center to request either option. If you have a
Federal Stafford Loan, you must contact the lender or agency that holds your loan. For
either program, you might have to provide documentation to support your request. You must continue making scheduled payments
until you receive notification that the deferment or forbearance has been granted.
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