Use Federal Stafford Loans To Pay For College

Added August 25, 2005 by Think Glink Staff

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Summary: When you're paying for college you'll likely have a combination of student loans, grants and scholarships. One type of student loan to consider is the federal Stafford loan. Banks issue federal Stafford loans in either subsidized or unsubsidized options. Learn about how Stafford loans work so you'll know how to pay for college.

Q. What is a Federal Stafford Loan, and what is the difference between subsidized and unsubsidized?

A. Federal Stafford Loans are student loans that must be repaid and are available to both undergraduate and graduate students. If your school participates in the Federal Direct Loan (Direct Loan) Program, the federal government provides the funds for your Stafford Loan. If your school participates in the Federal Family Education Loan (FFEL) Program, a private lender provides the funds for your Stafford Loan, although the federal government guarantees the loan funds.

The Subsidized Federal Stafford Loan is based on financial need. The federal government pays the interest on the loans while students are in school. To qualify, the student must complete the FAFSA.

The Unsubsidized Federal Stafford Loan is not based on financial need. It is available to any student whose education costs are higher than the amount of financial aid awarded. Students are responsible for the interest payments, even while they are in school.

Undergraduate, graduate, vocational and professional students are eligible for loans. Loan repayment on both loans begins six months after students graduate or drop to less than half-time enrollment. Money for the loan comes from either the federal government or a bank, credit union, or other participating lender. The interest rate is adjusted annually, with a maximum of 8.25 percent. Loan limits vary.

Return to Frequently Asked Questions about Saving for College.

Aug. 25, 2005.

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