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The federal loan for students is called the Stafford Loan and has two variations:
If the Stafford Loan is administered by the
Federal Family Education Loan Program
(FFELP), this means that the funds are provided by private
lenders, such as banks, credit unions, and
savings & loan associations. These loans are guaranteed against default by the federal
government. If your school is a "Direct Lending School", your Stafford Loan is administered by
the Federal Direct Student Loan Program
(FDSLP). Funds for "direct loans" are provided by
the US government directly to students
through their schools.
All Stafford Loans are either subsidized (the
government pays the interest while you're in
school) or unsubsidized (you pay all the interest, although you can have the payments deferred
until after graduation). To receive a subsidized
Stafford Loan, you must be able to demonstrate financial need.
With the unsubsidized Stafford loan, you can
defer the payments until after graduation by
capitalizing the interest. This adds the interest payments to the loan balance, increasing the size
and cost of the loan.
All students, regardless of need, are eligible for
the unsubsidized Stafford Loan.
Stafford loans for graduate students have higher
loan limits than Stafford loans for undergraduate
students. Many students combine subsidized loans with
unsubsidized loans to borrow the maximum
amount permitted each year.
Stafford Loans have variable interest rates
(based on 91-day T-bill rate + 1.7% during
school with an additional .6% increase upon graduation) capped at 8.25% or less, depending
on yearly adjustments. All lenders offer the same
rate for the Stafford Loan, although some give discounts
for on-time and electronic payment of the loan after
graduation.
If your borrowing needs are not met by the
federal programs, lenders offer a variety of
supplemental borrowing programs known as Private or Alternative
Loans.
To apply for a Stafford Loan, you must submit
the Free Application for Federal Student Aid
(FAFSA). Even though the unsubsidized Stafford Loan is available to all students regardless of
financial need, you must still submit the FASFA to
be eligible. You can receive a subsidized loan and an unsubsidized loan for the same period.
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