Everything You Need to Know About Federal Stafford Loans

on April 14, 2016

Federal Stafford Loans are the most popular type of loan used to pay for a college education. There are two main types of Federal Stafford Loans, subsidized and unsubsidized.

  • The federal government pays the interest on subsidized Federal Stafford Loans, also known as Direct Subsidized Loans, during the in-school and grace periods and during periods of authorized deferment, such as the economic hardship deferment. The borrower is responsible for the interest during the repayment period and during forbearances.
  • The government does not pay the interest on unsubsidized Federal Stafford Loans, also known as Direct Unsubsidized Loans. If the borrower does not pay the interest as it accrues, it is added to the loan balance (capitalized). Unpaid interest is capitalized when the loan enters repayment and during other loan status changes. The capitalization of interest increases the amount of debt and allows interest to be charged on interest.

Subsidized and unsubsidized Federal Stafford Loans currently have different loan limits, but the same interest rates and fees. Subsidized Federal Stafford Loans are available to undergraduate students but not graduate students.

Interest Rates and Fees


Federal Stafford Loans have fixed interest rates that do not change over the life of the loan. However, each academic year’s new loans are at a new interest rate that is based on the last 10-year Treasury Note auction in May, plus a margin. The new interest rates take effect for new loans on or after July 1.

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


Borrower Interest Rate
Interest Rate
Interest Rate Formula Rate Cap
Undergraduate 3.76% 4.45% 10-year Treasury + 2.05% 8.25%
Graduate 5.31% 6.00% 10-year Treasury + 3.60% 9.5%


The Federal Stafford Loan has the same fee for undergraduate and graduate students, 1.069 percent of the amount borrowed. The fee is deducted from the disbursement and is not paid in advance of receiving the loan. The fee may change mid-year, depending on sequestration.

Federal Stafford Loan Limits


The Federal Stafford Loan Limits depend on the borrower’s year in school and whether the borrower is a dependent student or independent student.

The amount of subsidized Federal Stafford Loans an undergraduate student may receive depends on the annual and cumulative loan limits for subsidized loans and financial need. The amount of unsubsidized Federal Stafford Loans is equal to the overall Federal Stafford Loan limits, minus the subsidized loan amounts. Thus, anything a student doesn’t receive in subsidized Federal Stafford Loans may be borrowed as an unsubsidized Federal Stafford Loan.

Independent students are eligible for unsubsidized Federal Stafford Loan limits that are $4,000 or $5,000 higher than the limits for dependent students, depending on your in school. Dependent students whose parents a denied a Federal Parent PLUS Loan are eligible for the same loan limits as independent students.


Undergraduate Students Subsidized Stafford Unsubsidized Stafford (Dependent) Unsubsidized Stafford (Independent)
Freshman $3,500 $5,500 - subsidized $9,500 - subsidized
Sophomore $4,500 $6,500 - subsidized $10,500 - subsidized
Junior  $5,500 $7,500 - subsidized $12,500 - subsidized
Senior $5,500 $7,500 - subsidized $12,500 - subsidized
Cumulative $23,000 $31,000 $57,500


The loan limits for graduate school include professional school, such as law. Medical school loan limits are greater than those for graduate and professional school.


Graduate Students Unsubsidized Stafford (Graduate School) Unsubsidized Stafford (Medical School)


Cumulative (including undergraduate) $138,500 $224,000

Federal Stafford Loan Repayment


The 6-month grace period on Federal Stafford Loans begins when the student graduates or drops below half-time enrollment. Repayment begins at the end of the grace period.

The standard repayment term is 10 years. Monthly loan payments will be approximately 1 percent of the loan balance when the loan entered repayment.

Borrowers may choose alternate repayment plans, such as extended repayment, graduated repayment and income-driven repayment. Extended repayment offers loan terms of up to 25 or 30 years, depending on the amount owed. Graduated repayment starts will low monthly payments that are just above interest only, and increases the monthly payment every two years. Income-driven repayment bases the monthly payment on a percentage of the borrower’s discretionary income instead of the amount owed.

Federal Stafford Loan Eligibility


To be eligible for the Federal Stafford Loan, you must be a U.S. citizen, permanent resident (green card holder) or eligible non-citizen. You must also be enrolled as a regular student in an eligible degree or certificate program. Half-time or greater enrollment status is required. You must not be in default on any federal student loans or grant overpayments.

To apply for a Federal Stafford Loan, file the Free Application for Federal Student Aid (FAFSA) at www.fafsa.ed.gov. The college financial aid office will send you a financial aid award letter that includes information about your Federal Stafford Loan eligibility. You will then need to complete a Master Promissory Note (MPN) at https://studentloans.gov.

Loan funds are sent to the college. The college will first apply the loan funds to tuition and fees. If you are living in college-owned housing, the loan funds will also be applied to room and board. The credit balance, if any, will then be refunded to you within 14 days. There is, however, an automatic 30-day delay for first-time, first-year borrowers at most colleges. Also, most colleges will split the student loan money into two disbursements. (Colleges with low default rates can choose to waive the 30-day delay and two-disbursement rules.)



When financial aid and federal student loans aren't enough to cover all college costs, consider financing the gap with private student loans. Shop around to find the loans that best fit your needs.

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