Stafford loan
Encyclopedia
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. Senator Robert Stafford
, a Republican
from Vermont
, for his work on higher education.
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 directly from the United States Department of Education
through the Federal Direct Student Loan Program
(FDSLP, also known as Direct).
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).
The Budget Control Act of 2011
, eliminates subsidized Stafford loans for graduate and professional students effective July 1, 2012. Unsubsidized Stafford loans will still be available to these students.
on Stafford Loans may vary and are determined based upon the date the loan was disbursed.
For variable rate loans, the rates are set annually using the price of the 91-day Treasury bill on the last Monday of May, and become effective for the following year on July 1. For fiscal year 2008-2009 the 91-day Treasury bill auctioned on May 27, 2008 at 1.905% (rounded to 1.91%) are used for the calculation. On May 26, 2009 the 91-day Treasury bill was auctioned at an investment rate of 0.178%. On July 1, 2009, the base rate for variable rate Stafford Loans were adjusted to 0.18%. Loans issued before July 1, 1998 were adjusted to a rate of 3.28%. Loans issued July 1, 1998–June 30, 2006 were adjusted to a rate of 2.48%.
As of July 1, 2006 all Stafford Loans are issued with a fixed interest
rate. For Direct loans and most loan providers, the rate is currently set at 6.80% for unsubsidized loans, with lower rates for subsidized loans for undergraduates until July 1, 2012. The fixed rate for all new subsidized loans will then be changed to 6.80%.
Student loan
A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education...
offered to eligible students enrolled in accredited American
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
institutions of higher education
Higher education
Higher, post-secondary, tertiary, or third level education refers to the stage of learning that occurs at universities, academies, colleges, seminaries, and institutes of technology...
to help finance their education. The terms of the loans are described in Title IV of the Higher Education Act of 1965
Higher Education Act of 1965
The Higher Education Act of 1965 was legislation signed into United States law on November 8, 1965, as part of President Lyndon Johnson's Great Society domestic agenda. Johnson chose Texas State University–San Marcos as the signing site...
(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. Senator Robert Stafford
Robert Stafford
Robert Theodore Stafford was an American politician from Vermont. In his lengthy career, he served as the 71st Governor of Vermont, a United States Representative, and a U.S. Senator...
, a Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
from Vermont
Vermont
Vermont is a state in the New England region of the northeastern United States of America. The state ranks 43rd in land area, , and 45th in total area. Its population according to the 2010 census, 630,337, is the second smallest in the country, larger only than Wyoming. It is the only New England...
, for his work on higher education.
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
Free Application for Federal Student Aid
The Free Application for Federal Student Aid is a form that can be prepared annually by current and prospective college students in the United States to determine their eligibility for student financial aid .Despite its name, the application is the gateway to...
. Stafford Loans are available to students directly from the United States Department of Education
United States Department of Education
The United States Department of Education, also referred to as ED or the ED for Education Department, is a Cabinet-level department of the United States government...
through the Federal Direct Student Loan Program
Federal Direct Student Loan Program
The William D. Ford Federal Direct Loan Program provides "low-interest loans for students and parents to help pay for the cost of a student's education after high school. The lender is the U.S. Department of Education .....
(FDSLP, also known as Direct).
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).
The Budget Control Act of 2011
Budget Control Act of 2011
The Budget Control Act of 2011 was passed by the 112th United States Congress signed into law by President Barack Obama. It brought conclusion to the 2011 United States debt ceiling crisis, which had threatened to lead the United States into sovereign default on or about August 3, 2011.The law...
, eliminates subsidized Stafford loans for graduate and professional students effective July 1, 2012. Unsubsidized Stafford loans will still be available to these students.
Interest rates
InterestInterest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
on Stafford Loans may vary and are determined based upon the date the loan was disbursed.
For variable rate loans, the rates are set annually using the price of the 91-day Treasury bill on the last Monday of May, and become effective for the following year on July 1. For fiscal year 2008-2009 the 91-day Treasury bill auctioned on May 27, 2008 at 1.905% (rounded to 1.91%) are used for the calculation. On May 26, 2009 the 91-day Treasury bill was auctioned at an investment rate of 0.178%. On July 1, 2009, the base rate for variable rate Stafford Loans were adjusted to 0.18%. Loans issued before July 1, 1998 were adjusted to a rate of 3.28%. Loans issued July 1, 1998–June 30, 2006 were adjusted to a rate of 2.48%.
As of July 1, 2006 all Stafford Loans are issued with a fixed interest
Fixed interest
A fixed interest rate loan is a loan where the interest rate doesn't fluctuate during the fixed rate period of the loan. This allows the borrower to accurately predict their future payments...
rate. For Direct loans and most loan providers, the rate is currently set at 6.80% for unsubsidized loans, with lower rates for subsidized loans for undergraduates until July 1, 2012. The fixed rate for all new subsidized loans will then be changed to 6.80%.