Federal Stafford Loans

"Federal Stafford Loans" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 9th January 2012

Federal student loan administered under two programs: the Federal Family Education Loan Program (FFELP) or the William D. Ford Federal Direct Loan Program (Direct Loan). There are two categories of Federal Stafford loans:

The federal government insures the loan, which provides for a low interest rate. The current (July 1, 2000 - June 30, 2001) in-school rate is 7.59%. Students may be eligible to borrow subsidized loans up to $2,625 for the freshman year, up to $3,500 for the sophomore year, and up to $5,500 per year for remaining undergraduate years. Unsubsidized loans increase the availability of funds. Graduate students can borrow up to $18,500 per year.

Some schools fund their loans directly through the government's Direct Lending program. Most schools continue to use banks and other lenders. Some provide options for both. The Direct Lending program does not offer the loan discounts that several banks and other loan providers provide. Check with your financial aid office to determine which program they offer.

Repayment begins on these loans six months after you no longer are attending on at least a half time basis. The six months before repayment is called the grace period.

Stafford loans can be Subsidized, Unsubsidized or a combination of both. Students receiving Subsidized Stafford loans pay no interest on the loan while they are attending college on at least a half-time basis. During the in-school and grace period, the federal government pays the interest for you. Borrowers of Unsubsidized Stafford loans are responsible for the interest during the in-school and grace periods. You can either pay the interest on a quarterly basis or allow the interest to accrue. If you choose to allow the interest to accrue, the interest will be added to the principal and will compound over time. In effect, interest will be paid on interest and principal and so forth.

If you have never borrowed a Stafford loan, you will receive detailed information regarding your Stafford loans when you attend your entrance interview. The entrance interview is a mandatory one-time session where the school will explain to you your rights and responsibilities relevant to your loans.

If you borrow through the FFELP program, you will have to choose a lender. The vast majority of banking institutions participate in the program so, you may even be able to use the bank you have your other accounts through as your lender. However, many schools prefer you borrow through lenders they have established working relationships with and may also suggest you use the guarantee agency used by the state they are located in.

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