Federal Direct Stafford Loans are low-interest loans that help students finance their postsecondary education by covering the cost of attendance. Subsidized loans offer better terms than unsubsidized loans and are available to undergraduate students with demonstrated financial need. For subsidized loans, the U.S. Department of Education pays the interest while the student is enrolled at least half-time in school.
|Subsidized Loan||Unsubsidized Loan|
|Also known as||Direct Subsidized Loans (US)||Direct Unsubsidized Loans (US)|
|Eligibility||Undergraduate students enrolled at least half-time in school and in need of financial aid||Graduate and undergraduate students|
|Amount||Determined by school and does not exceed financial need||Determined by school after considering the cost of attendance and other financial aids received|
|Interest||US department of education pays the interest: When student is in school for at least half-time. During first six months after leaving school (Grace period). During a deferment period (postponement of loan payment)||Paid by the borrower from the beginning. Any interest accrued is added to the principal.|
|How to Apply||Submit the application forms at http://studentaid.ed.gov/fafsa||Submit the application forms at http://studentaid.ed.gov/fafsa|
|Annual loan limits for dependent students||Undergrad: 1st yr-$3500, 2nd yr-$4500, 3rd yr and beyond-$5500; Graduate Professional or Veterinary Medicine-NA;||Undergrad: 1st yr-$2000, 2nd yr-$2000, 3rd yr and beyond-$2000; Graduate Professional or Veterinary Medicine-NA|
|Maximum Total Debt for dependent students||$23,000||$7,000|
|Annual loan limits for independent students||Undergrad: 1st yr-$3500, 2nd yr-$4500, 3rd yr and beyond-$5500; Graduate Professional or Veterinary Medicine-NA;||Undergrad: 1st yr-$6000, 2nd yr-$6000, 3rd yr and beyond-$7000; Graduate Professional -$20500, Veterinary Medicine-$40500|
|Maximum Total Debt for independent students||$23,000||$34,000|
|Current Interest Rates||Undergrad-3.4%, Grad-NA||Undergrad and Grad-6.8%|
|Loan Fee||1% of loan amount||1% of loan amount|
|Repayment duration||Begin repayment at 6 months after you cease to be a student, total repayment in 10-25yrs||Begin repayment at 6 months after you cease to be a student, total repayment in 10-25yrs|
Types of student loans
Subsidized and Unsubsidized loans refer to Federal Direct Stafford Loans. There are two broad types of student loans:
- Private student loan – Loans by a lender such as a bank, credit union, state agency, or a school.
- Federal student loan – Funded by federal government. Free Application for Federal Student Aid (FAFSA) should be completed to avail or to check eligibility.
- Federal Perkins loan - low-interest federal student loans for undergraduate and graduate students with exceptional financial need
- Federal Direct Stafford Loans
- Direct subsidized loan – low-interest federal student loans for undergraduate students with financial need
- Direct unsubsidized loan – low-interest federal student loans for undergraduate and graduate students
- Direct PLUS loans - federal loans for graduate or professional degree students and parents of dependent undergraduate students
A subsidized Federal Direct Stafford Loan is based on financial need. It is only available to undergraduate students. The advantage of a subsidized loan is that federal government -- not the student -- pays the interest for the student during the following periods:
- While the student is enrolled in school at least half time
- During the six-month grace period after the student graduates, leaves school or drops below half-time enrollment
- During a period of deferment (a period when payments of principal are temporarily postponed)
An unsubsidized loan is available to all eligible students, whether graduate or undergraduate. There is no requirement to demonstrate financial need. The student is responsible to paying the interest on the loan throughout the life of the loan. However, if the student does not wish to service the loan while in school, the accrued interest is capitalized i.e. added to the outstanding principal.
Eligibility criteria for Federal Direct Stafford Loans, whether subsidized or unsubsidized, include:
- U.S. citizens or eligible noncitizens
- Enrolled or accepted for enrollment on at least a half-time basis in an eligible program at an eligible school
- Registered with the U.S. Selective Service System (for males not exempt from registration)
In addition, qualification for subsidized loans requires the student to demonstrate ongoing financial need. Financial need is the difference between Cost of Attendance (COA) of a school and the Expected Family Contribution (EFC). After July 1, 2012, unsubsidized loans are no longer available to graduate students; they are for undergraduate students only.
As explained in the overview, subsidized loans offer the advantage that the government pays the interest while the student is in school.
Each loan also has a grace period of six months. This is a period of time after borrowers graduate, leave school, or drop below half-time enrollment where they are not required to make payments on their federal student loans. Interest will accrue on subsidized loans made between July 1, 2012 and July 1, 2014, and all unsubsidized loans during grace periods. If the interest is not paid, it will be added to the principal balance of the loan when the repayment period begins.
In addition, Federal Direct loans also include a provision for deferment. Deferment is a postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue for subsidized loans. Unsubsidized loans that are deferred will continue to accrue interest and any accrued unpaid interest will be added to the principal balance (capitalized) of the loan at the end of the deferment period.
The interest rates for the loans first disbursed between July 1, 2012 and July 30, 2013 are as follows:
|Loan Type||Interest Rate|
|Direct Unsubsidized Loan||Fixed at 6.8%|
|Direct PLUS Loans (Parents and graduates or professional students)||Fixed at 7.9%|
|Direct Subsidized Loan||Fixed at 3.4%|
|Perkins Loan||Fixed at 5%|
Amount You Can Borrow
In both unsubsidized and subsidized loans, the amount depends upon the Cost of Attendance. For subsidized loans, the student can only borrow up to an amount equal to the difference between the cost of attendance (COA) and the expected family contribution (EFC).
This chart, from US Dept. of Education shows the maximum annual and total loan limits for subsidized and unsubsidized Stafford loans as of July 1, 2012.
The loan fees for federal student loans are:
- 1% for Direct Subsidized Loans and Direct Unsubsidized Loans
- 4% for Direct PLUS Loans
Perkins Loans do not have fees. Loan fees are deducted proportionately from each disbursement. This results in the actual amount received being less than the actual borrowed amount. The actual amount borrowed has to be repaid.
How to Apply
To apply for a Direct Loan, you must first complete and submit the Free Application for Federal Student Aid (FAFSASM). Your school will use the information from your FAFSA to determine how much student aid you are eligible to receive. Direct Loans are generally included as part of your financial aid package.
- U.S. Department of Education
- Federal Student Loans in the U.S.
- Federal Direct Stafford/Ford Loan / Federal Direct Unsubsidized Stafford/Ford Loan Master Promissory Note (MPN), the form a student must sign to obtain a Federal Direct Stafford Loan (whether subsidized or not).
- TGSLC - Federal Direct Loan Program (FDLP)