What is a Federal Stafford Loan?

Aaditya Shah
Aaditya Shah

Aaditya is a freelance writer specializing in personal finance. With a passion for simplifying complex financial concepts, Aaditya provides practical tips and insights to help readers make smarter money decisions. Through his concise and informative articles, he empowers individuals to take control of their finances and build a secure financial future. His articles combine a conversational tone with actionable strategies, making them accessible and relatable to readers from all walks of life.

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August 17, 2022

As students, exploring student loan options can be tricky. Understanding and knowing all the types of loans, both federal and private, can be overwhelming. That’s before knowing the intricacies of each loan type, eligibility requirement, and even loan structure. 

Let’s look at one of the most popular types of student loan, the Federal Stafford Loan. 

What is a Federal Stafford Loan?

Stafford Loans are a subset of federal student loans that can either be subsidized or unsubsidized. Rather than borrowing from a private for-profit institution, students borrow directly from the U.S. Department of Education. 

These loans are also more commonly referred to as Direct Loans as they come directly from the government and are a common way to help pay for college. Approximately 30% of undergraduate students borrow from the federal government, however, the total amount of debt borrowed in federal student loans represents over 90% of the total U.S. student debt. Of that 90%, over 50% of student loan debt is in Stafford Loans. This further breaks down as 18.6% in subsidized Stafford loans and 34.2% in unsubsidized Stafford Loans. 

Before moving further, let’s quickly discuss the difference between subsidized and unsubsidized Stafford Loans. 

Subsidized vs. Unsubsidized

Subsidized Stafford Loans are offered to undergraduate students that demonstrate financial need. For this type of loan, the federal government is responsible for paying any interest while you are in school or during a period in which you aren’t required to make payments.

On the other hand, unsubsidized Stafford Loans are offered to both undergraduate and graduate students and don’t have any requirement to demonstrate financial need. With this type of loan, students are responsible for paying any and all interest while it accrues.

While this is a quick summary, a more detailed article explaining the difference between them can be found here.

Who is Eligible for a Federal Stafford Loan?

As Stafford Loans are administered by the U.S. Department of Education, they are among the most accessible to obtain. This is because Stafford loans don’t have an eligibility requirement that assesses your creditworthiness or ability to repay them.

With that being said, it is very easy to become unaware of the amount of money you borrow, and ultimately end up repaying with significantly more interest. Be sure to borrow only what you need to cover your tuition costs and not any other discretionary spending.

Although Federal Stafford Loans don’t have the same eligibility requirements like those that come from a private lender, there are certain criteria that a student must meet to qualify for the Direct Loan. These are:

  • Citizenship Status: Be a U.S. citizen or an eligible non-citizen
  • Enrollment Status: Be enrolled at least half-time in an eligible degree or certificate program
  • Have a valid Social Security Number, with certain exceptions
  • Show you are qualified to obtain a college or career school education. This can be shown through:
    • Having a high school diploma or equivalent
    • Enrolling in an eligible career pathway program
  • Not in default on any existing federal student loans (You must file the Free Application for Federal Student Aid (FAFSA®) form)
  • Meet general eligibility requirements for federal student aid

What Are the Interest Rates on Federal Stafford Loans?

The current federal Stafford Loan interest rate is based on the borrower type and loan type. Currently, for undergraduate students that borrow through either a subsidized or unsubsidized Stafford Loan, they will receive a 4.99% interest rate. As graduate and professional students don’t have access to subsidized loans, the unsubsidized loans are accompanied by a 6.54% interest rate. 

Note that all federal loans have a fixed interest rate. These figures are representative of any loans that are first disbursed on or after July 1, 2022, and before July 1, 2023. 

How Much Can I Borrow with Federal Stafford Loans?

Although Stafford Loans are provided by the U.S. Department of Education, the amount of money you are given through this program is determined by your school. They also decide if you are eligible for a subsidized loan or unsubsidized loan. 

In addition, Federal Stafford Loans have a “ceiling” on the amount of loan that can be provided. This amount varies based on what year of schooling you are in and whether you are a dependent or independent student. The following chart shows the exact amounts based on your specific situation.

Source: StudentAid.gov 

Can Federal Stafford Loans be Forgiven?

Federal Stafford Loans can be forgiven through certain forgiveness programs. These programs are often dependent on your profession or loan type. Generally, professions that serve the wider community are eligible for student loan forgiveness programs. Examples of these professions include teachers, nurses, and any members of the military.  

What’s Next

Now, with the understanding of what a Federal Stafford Loan is, you can make a comprehensive, educated decision about the student loan you apply for. While applying and searching for student loans may still appear to be complex, using Sparrow will make your search much easier. Sparrow consolidates personalized loan offers from several lenders and displays all the required information that you need to make an informed decision.

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