Stafford Loans: Essential Information

Qualified students can take advantage of a number of federal student loan programs. However, in contrast to federal grants, loans require repayment. Still, student loans backed by the government offer substantial benefits and advantages over private financial arrangements. Each student loan program sponsored by the government requires that you fill out a FAFSA to determine your financial need. Perhaps the best known of all federal loan offerings is the Stafford loan: Keep reading below to learn the basics of how a Stafford loan works and what you can expect to encounter in the application and disbursement processes for this type of loan.

Stafford Loan History and Background
The federal Stafford loan program began life as part of the 1965 Higher Education act under the name of The Federal Guaranteed Student Loan Program. In 1988, the programs name was changed to honor Vermont Senator Robert Stafford, a prominent advocate of government aid for higher education. Stafford loans are guaranteed by the U.S. government, meaning if an individual student defaults on the loan, the government will take responsibility. Thus, with the reduced risk to lenders, Stafford loans can be granted to students at a lower-than-market interest rate. Stafford loans are disbursed to students. Similar type loans, called PLUS loans, are disbursed to parents.

Stafford Loan Types
There are two types of Stafford loans administered by the U.S. Department of Education: the Federal Family Education Loan (FFEL) Program and the Federal Direct Loan Program (FDLP).

Although colleges or universities usually ascribe to one program or the other, sometimes they make use of both. If your school uses the FDLP, your funds will come directly from the U.S. treasury. If your school is an FFEL institution, your loan moneys will flow from a credit union, bank, or a similar outside lending institution. The only thing that affects you in terms of the different programs is the repayment plans, which vary somewhat. The loan amounts and eligibility guidelines are identical.

Subsidized vs. Unsubsidized?
This is no mystery. Receiving a subsidized loans simply means that the government will pay the interest on the loan while you remain enrolled in school. Whether you receive the benefit of a subsidized Stafford loan is determined by your financial need according to your FAFSA.

Interest Rate For Staffords
The current interest rate for Stafford loans is a fixed 6.8 percent. Before summer of 2006, the rate was variable. Are you an undergraduate student or aspiring college attendee? Good news. Starting for loans disbursed on June 1 2008 and every year after, the Stafford interest rate will be plummeting. Refer to the table below for the good news:

Initial loan disbursement: Unpaid Balance's Interest Rate
Disbursed on or after But before
July 1, 2008 July 1, 2009 6.0 percent
July 1, 2009 July 1, 2010 5.6 percent
July 1, 2010 July 1, 2011 4.5 percent
July 1, 2011 July 1, 2012 3.4 percent

Maximum Stafford Loan Amounts 2007-2008
Each year, dependent undergraduates are eligible for the maximum amounts below:

* $3,500: For first year students enrolled for a full time course of study in the 2007-08 academic year.
* $4,500: For students who've completed one year of study and the remainder of their program includes at least one academic year.
* $5,500: For students having completed two years of study with a full academic year remaining in their course of study.

Independent undergraduate students or dependent students whose parents were denied a PLUS loan can borrow these maximum amounts each year:

* $7,500 For first year students enrolled for a full time course of study in the 2007-08 academic year.
* $8,500 For students who've completed one year of study and the remainder of their program includes at least one academic year.

* $10,500 For students having completed two years of study with a full academic year remaining in their course of study.

Receiving Your Loan Moneys
Stafford loan funds are managed by your higher education institution. The FFEL and Direct Loan programs each dictate that your school ill disburse funds in no fewer than two installments. However, any installment will not exceed one half of your total loan amount. Reasonably enough, it's required that the loan moneys be applied to cover tuition, room, board, fees and miscellaneous college expenses. On the off chance some loan money is still available to you, the funds will be released to you in the form of a check, or -- more likely -- a credit for the next term's expenses and fees.