Stafford Loan

A Stafford Loan is a student loan offered to eligible students enrolled in accredited American institutions of higher education to help finance their education. The terms of the loans are described in Title IV of the Higher Education Act of 1965 (with subsequent amendments), which guarantees repayment to the lender if a student defaults.

In 1988, Congress renamed the Federal Guaranteed Student Loan program the Robert T. Stafford Student Loan program, in honor of U.S. SenatorRobert Stafford, a Republican from Vermont, for his work on higher education.[1]

Because the loans are guaranteed by the full faith of the US Government, they are offered at a lower interest rate than the borrower would otherwise be able to get for a private loan. On the other hand, there are strict eligibility requirements and borrowing limits on Stafford loans.

Students applying for a Stafford loan or other federal financial aid must first complete a FAFSA. Stafford loans are available to students either directly from the United States Department of Education through the Federal Direct Student Loan Program (FDSLP, also known as Direct) or from a financial intermediary (such as Chase, Sallie Mae or Student Loan Corp.) through the Federal Family Education Loan Program (FFELP).

No payments are expected on the loan while the student is enrolled as a full or half time student. This is referred to as in-school deferment. Deferment of repayment continues for six months after the student leaves school either by graduating, dropping below half-time enrollment, or withdrawing. This is referred to as the Grace Period.

Stafford loans are available both as subsidized and unsubsidized loans. Subsidized loans are offered to students based on demonstrated financial need. The interest on Subsidized loans is paid by the federal government while the student is in school, during the grace period, and during authorized deferment. For unsubsidized Stafford loans, students are responsible for all of the interest that accrues while the student is enrolled in school. The interest may be deferred throughout enrollment. Unpaid interest that is deferred until after graduation is capitalized (added to the loan principal).

Interest on Stafford loans may vary and are determined based upon the date the loan was disbursed.

Calculations to determine undergraduate Stafford loan rates

Stafford Loan Disbursement Date Rate Type Subsidized Interest Rate Unsubsidized Interest Rate Current Rate (2009-2010)
Prior to July 1, 1998 Variable 91-Day T-Bill + 3.1% 91-Day T-Bill + 3.1% 3.28%
July 1, 1998 to June 30, 2006 Variable 91-Day T-Bill + 2.3% 91-Day T-Bill + 2.3% 2.48%
July 1, 2006 to June 30, 2008 Fixed 6.8% 6.8% 6.8%
July 1, 2008 to June 30, 2009 Fixed 6.0% 6.8% 6.8%
July 1, 2009 to June 30, 2010 Fixed 5.6% 6.8% 6.8%
July 1, 2010 to June 30, 2011 Fixed 4.5% 6.8% 6.8%
July 1, 2011 to June 30, 2012 Fixed 3.4% 6.8% 6.8%
July 1, 2012 to June 30, 2013 Fixed 6.8% 6.8% 6.8%