Everything you need to know about the Federal Stafford Loan

Mark KantrowitzBy Mark KantrowitzBy Savingforcollege.com

The Federal Stafford Loan, also known as the Federal Direct Loan, is the largest and most popular student loan program. The Federal Stafford Loans are low-cost loans borrowed by students to pay for their college education.

Subsidized and unsubsidized loans

There are two versions of the Federal Stafford Loan, subsidized and unsubsidized.

The federal government pays the interest on subsidized loans during the in-school and grace periods, as well as other deferment periods, such as during an economic hardship deferment.

The federal government does not pay the interest on subsidized loans during forbearance periods.

The federal government does not pay the interest on unsubsidized loans.

Interest rates on Federal Stafford Loans

The interest rates on Federal Stafford Loans are fixed rates that change for new loans each July 1. The new interest rate is based on the last 10-year Treasury Note Auction in May.

The Federal Stafford Loan charges different interest rates for undergraduate and graduate students.

The interest rates are set according to this formula:

Degree LevelFormulaCap
Undergraduate10-year Treasury + 2.05%8.25%
Graduate10-year Treasury + 3.60%9.50%

This table shows the most recent interest rates.

Degree Level2018-20192019-2020
Undergraduate5.045%4.529%
Graduate6.595%6.079%

Loan fees on Federal Stafford Loans

Loan fees are deducted from the loan disbursements. Borrowers may choose to have the loan fees added to the loan balance.

The loan fees are about 1.0%, the same for undergraduate and graduate students. Loan fees changed each October 1, based on the federal budget. The loan fees are charged based on the disbursement date.

The most recent fees are shown in this table.

DateLoan Fees
October 1, 2019 - September 30, 20201.059%
October 1, 2018 - September 30, 20191.062%

Loan limits on Federal Stafford Loans

The Federal Stafford Loan has annual and aggregate loan limits.

The loan limits on subsidized Federal Stafford Loans are lower than the overall Federal Stafford Loan limits. Borrowers may borrow any amounts that they do not receive as subsidized Federal Stafford Loans as unsubsidized loans, up to the overall limits.

Loan limits also differ based on the borrower’s year in school and on the student’s dependency status.

The annual loan limits for the subsidized Federal Stafford Loan are the same for dependent and independent students.


Grade Level
Subsidized Stafford
Annual Loan Limits
Freshman$3,500
Sophomore$4,500
Junior$5,500
Senior$5,500
Graduate StudentNone

The annual loan limits for the unsubsidized Federal Stafford Loan are different for dependent and independent students.

The annual loan limits are $4,000 or $5,000 higher for independent students.

Unsubsidized Stafford
Annual Loan Limits
By Grade Level

Dependent
Students


Independent
Students

Freshman$5,500$9,500
Sophomore$6,500$10,500
Junior$7,500$12,500
Senior$7,500$12,500
Graduate StudentN/A$20,500
Medical SchoolN/A$40,500

The aggregate limits depend on degree level, dependency status and whether the loans are subsidized or unsubsidized.

Aggregate Loan Limits
By Grade Level
Subsidized
Loan Limits
Overall
Loan Limits
Undergraduate (Dependent)$23,000$31,000
Undergraduate (Independent)$23,000$57,500
Graduate + Undergraduate$65,500$138,500
Medical School$65,500$224,000

Eligibility for Federal Stafford Loans

Eligibility for the Federal Stafford Loan does not depend on the borrower’s credit scores, credit history, employment or income. There is no credit check. There are no cosigners on Federal Stafford Loans.

To be eligible for federal education loans, the student must be enrolled at least half-time. The student must file the Free Application for Federal Student Aid (FAFSA) and sign a Master Promissory Note (MPN) at StudentLoans.gov.

The student must also satisfy other general eligibility requirements for federal student aid, including citizenship status, enrollment in an eligible degree or certificate program, maintaining satisfactory academic progress, and not being in default on a federal student loan or grant overpayment.


Disbursement of Federal Stafford Loans

The funds from a Federal Stafford Loan are sent directly from the federal government to the college. The college financial aid office then applies the loan funds to tuition and fees, plus room and board if the student is living in college housing.

Any remaining credit balance is normally “refunded” to the student within 14 days. However, federal regulations require a 30-day delay for first-time, first-year borrowers at some colleges. The college may also be required to split the student loan money into two disbursements. (Colleges with low cohort default rates may receive a waiver of the 30-day delay and two-disbursement requirements.)

Repayment of Federal Stafford Loans

Repayment of Federal Stafford Loans begins 6 months after the student graduates or drops below half-time enrollment. The 6-month period is called a grace period.

The standard repayment term is 10 years. The borrower can choose other repayment plans, such as extended repayment, income-driven repayment and graduated repayment.

Borrowers can consolidate their federal student loans into a Federal Direct Consolidation Loan. The interest rate on a Federal Direct Consolidation Loan is the weighted average of the interest rates on the loans included in the consolidation loan, rounded up to the nearest 1/8th of a percentage point.

Forgiveness of Federal Stafford Loans

There are several options for forgiveness of Federal Stafford Loans. These usually involve working in a particular occupation for a period of time. Examples include Teacher Loan Forgiveness and Public Service Loan Forgiveness.

There are also several options for cancellation of Federal Stafford Loans. These usually involve situations in which the borrower is unable to repay the debt or not responsible for the debt. Examples include the closed school discharge, death discharge, total and permanent disability discharge, identity theft discharge, bankruptcy discharge, unpaid refund discharge and false certification discharge.

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