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Student Loans

What Is a Direct Stafford Loan?

A Direct Stafford Loan is a federal student loan that is offered to both eligible undergraduate and graduate students that are still in school, and who may need help paying for tuition and related expenses. Stafford Loans or Direct Stafford Loans can be unsubsidized loans or subsidized loans.

To qualify for a Direct Stafford Loan, you first need to complete the Free Application for Federal Student Aid (FAFSA). Applying for the FAFSA is free and if you qualify your school will notify you.

Do You Pay Back Direct Stafford Loans?

Yes, Direct Stafford Loans are loans that need to be paid back. The type of loan you have determines when you need to start paying it.

  • Subsidized Stafford Loans: the government pays the interest while you are in school, during grace periods, and during any deferment periods.
  • Unsubsidized Stafford Loans: you are responsible for paying all the interest that accrues from the date of the first disbursement until the loan (both principal and interest) is paid in full.

How Much Can I Borrow With a Direct Stafford Loan?

The amount that you can borrow with a Direct Stafford Loan depends on whether you qualified for an unsubsidized loan or a subsidized loan. The total amount is determined by your school and cannot exceed your financial need depending on which loan type you receive.

The amount that you are allowed to borrow each year also depends on what year you are in school and your dependency status. The following tables show the annual and aggregate limits for unsubsidized and subsidized loans for dependent and independent students as determined by the U.S. Department of Education.

Unsubidized Loans
YearDependent StudentsIndependent Students
First-Year Undergraduate Annual Loan Limit$5,500$3,500
Second-Year Undergraduate Annual Loan Limit$6,500$4,500
Third-Year Undergraduate and Beyond Annual Loan Limit$7,500$5,500
Graduate Students Annual Loan LimitNot Applicable$20,500
Unsubsidized Aggregate Loan Limit$31,000$57,500 (undergrads)
$138,500 (grads)
Subidized Loans
YearDependent StudentsIndependent Students
First-Year Undergraduate Annual Loan Limit$3,500$3,500
Second-Year Undergraduate Annual Loan Limit$4,500$4,500
Third-Year Undergraduate and Beyond Annual Loan Limit$5,500$5,500
Graduate Students Annual Loan LimitNot ApplicableNot Applicable
Subsidized Aggregate Loan Limit$23,000$23,000

Direct Stafford Loans: Unsubsidized vs. Subsidized Loans

The difference between an unsubsidized loan and a subsidized loan is that the borrower is responsible for paying the interest on an unsubsidized loan while the student is in school—provided the student is attending school at least half-time—and for the first six months after graduating (a grace period), and during a deferment period. For a subsidized loan, the U.S. Department of Education pays the interest while the student is in school.

If you decide to take out a private student loan you will pay all the interest even while you are in school. If you decide not pay the interest while you are in school, that interest will accumulate over time during a grace or deferment period, and be added to the balance of your loan.

Direct Stafford Loans Benefits

The main benefits of unsubsidized student loans are that they are available to both undergraduate and graduate students, and there is no requirement to prove there is a financial need for the loan. Students are also able to borrow more money with an unsubsidized loan as the loan limit can have a maximum amount of $31,000.

Direct Stafford Loans Drawbacks

One drawback that comes with both subsidized and unsubsidized loans of any kind is that you are taking on debt. When you take on debt you must accept the risks that come with that decision. One of those risks can be defaulting on the loan.

In the case of a federal loan, the government could garnish your wages—up to 15% of your income—or take your income tax refund as payment. With federal student loans, there is no statute of limitation, and they are generally non-dischargeable in bankruptcy.

The Cons of Unsubsidized loans

The downsides of an unsubsidized loan are that you are responsible for paying the interest on the loan starting the first day you receive the loan. If you can't make the payments on the loan, that interest is added to the total amount, and any interest that goes unpaid will slowly build over time.

The Cons of Subsidized Loans

The downsides of a subsidized loan are that you are limited to the amount that you can take out. The guidelines that determine the amount of money that you can receive depending on your school and what year you are in.

Most students are limited to $3,500 in subsidized student loans for their first year of school, $4,500 for their second year, and $5,500 for their third and fourth years according to the Department of Education.

If you are enrolled in a 4-year degree program, the maximum period that you can receive subsidized loans is six years. If you are enrolled in a two-year associate degree program, the maximum period is three years.

How to Qualify for a Direct Stafford Loan

To qualify you must be meet the following guidelines:

  • Be a U.S. citizen, a national or permanent resident
  • Be enrolled at least half-time in an accredited institution
  • Never have defaulted or owe a refund to any previous student loan or aid
  • Stay in good academic standing
  • You have a financial need (for subsidized loans)

What Are the Interest Rates for a Direct Stafford Loan?

The interest rate for Direct Stafford Loans varies depending on whether you choose an unsubsidized loan or a subsidized loan.

  • Direct unsubsidized student loans have an interest rate of 4.45% for undergraduates and 6% for graduate students on loans that were disbursed after July 1, 2017, and before July 1, 2018.
  • Direct subsidized student loans have an interest rate of 4.45% for loans that were disbursed after July 1, 2017, and before July 1, 2018.

Are There Fees for a Direct Stafford Loans?

Yes, there is a fee for Direct Stafford Loans, which is a percentage of the loan amount and is deducted from each loan payout. That percentage will vary depending on when the loan is first paid out. The loan fee is 1.066% for loans disbursed after Oct. 1, 2017, and before Oct. 1, 2018.

Make sure to read up on the different student loans to determine which one is the best fit for you before signing up.

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