When you discuss student funding for college, people toss around thoughts about scholarships and grants. But when the discussion turns to loans, someone brings up Stafford loans, and you nod your head and act like you know all about it. All the while you are thinking about how you have heard of them, don’t actually know what they are, and don’t want to feel dumb asking.

Feel dumb no longer. Consider this article your Stafford Loans for Smarties (because that’s how you’ll look when you explain it to the others).

What are Stafford Loans?

Stafford loans are just that, loans. They are borrowed money, funded by the government, meaning it is money that has to be paid back. Stafford loans can be used for any school-related expenses, such as tuition, fees, or room and board. These loans can be used at any eligible school that accepts them.

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There are two different types of Stafford loans. The first are subsidized and the second are unsubsidized. Let’s break that down.

What are subsidized Stafford Loans?

Subsidized Stafford loans are loans where you are not charged any interest while you are a student (at least half-time) until you begin repayment, because the government subsidizes, or pays for it, for you. These loans are awarded based on financial need. The current interest rate for subsidized Stafford loans is 3.4%.

What are unsubsidized Stafford Loans?

Unsubsidized Stafford loans are loans that are awarded to any eligible student because they are not based on financial need. These are different than the first because you are charged interest from the time the loan is disbursed until the loan is completely repaid. The current interest rate for unsubsidized Stafford loans is 6.8%.

A 1% origination fee is charged for each Stafford loan that is taken out, which isn’t paid up-front, but is added to the amount of the loan.

How much can students borrow for Stafford Loans?

The amount that can be borrowed depends on what year you are in school, if you dependent or independent (for example, whether you are claimed by your parents for taxes or insurance purposes), and how much your family or you can contribute for your college expenses. According to StudentAid.gov, the annual loan limit for dependent first-year students is $5,500, where an independent graduate or professional student loan limit is $20,500.

Lifetime limits are $31,000 for undergraduate dependents, $57,500 for undergraduate independents and for graduate or professional students it is $138,000, unless you are a health professional and the limit is $224,000.

How are Stafford Loans repaid?

There are different options for repayment of Stafford loans. Standard Stafford loan terms are for 10 years. You can opt for the standard repayment, where you pay a fixed amount every month based on the amount of your principal and interest. The graduated repayment gives you the option to pay lower payments at the beginning and the amount increases gradually. For people who have loans totaling more than $30,000, an extended repayment option is given so you can pay on either a standard or graduated repayment plan but the life of the loan is extended up to 25 years.

One perk is that there is no penalty for paying off Stafford loans early.

How do you apply for Stafford Loans?

You first have to fill out the Free Application for Federal Student Aid (FAFSA). This is the same application that is used for federal grants and work study programs. Once your school receives this and reviews it, you will receive a letter of award, typically stating how much you can borrow. You then choose the loan grantor, either one that is associated with the school and they can transfer your information electronically, or you can choose another, but the process takes longer.

Stafford loans do not renew, so you have reapply every year. Because the amount you are able to contribute or that your family may contribute to your college education may change within a year, the government requires that you reapply annually.

How are Stafford Loans given?

If you have squared away the paperwork on your Stafford loan and been awarded, the funds are distributed two times a school year, usually in the fall and winter semesters. If there are left over funds after paying for school expenses, the school credits your account or the extra may be paid directly to you. It depends on the school’s policy.

If, at some point, you don’t need the loan anymore, you just inform the financial aid office within the notification window, and the funds will not be sent.

So there you have it, all you need to know about Stafford loans. No more conversations where you are left in the dust, and no more reasons not to apply if you need it.

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