The Nuts and Bolts of Stafford Loans

This is the time of year when colleges start sending their bills out to new and returning students. And that’s why this is also the time of year when parents and students begin inquiring about college loans.
This is as good a time as any then  to answer some questions about Stafford Loans, which are the most popular federal college loans, as well as the best loans out there for students.

Stafford Loan Questions

Question No. 1: Are there different kinds of Stafford Loans?
Yes. There are unsubsidized Stafford Loans and subsidized Stafford Loans.
The best loan to get is the subsidized Stafford. The student loan interest rate on subsidized Stafford is lower. Beginning July 1, the interest rate will be 3.4%, which is a phenomenal deal. In comparison, the student loan interest rate on an unsubsidized Stafford is 6.8%.
Here’s the other important difference: Students who qualify for a subsidized Stafford Loan don’t have to pay the interest that accrues while the student is in college. The federal government pays for all this interest. Borrowers through the other Stafford don’t get this cushy deal.
Question No. 2: How do you know if you qualify for a subsidized Stafford or an unsubsidized Stafford loan?
Your college will tell you. Look on the financial aid package that your college sends you. In the package you should see what the breakdown of subsidized versus unsubsidized Stafford loans are. The majority of subsidized Stafford Loans are awarded to students whose family’s adjusted gross income is less than $50,000.
A federal formula is used to determine if a student, based on a family’s finances, is eligible for the better subsidized deal. You may see both kinds of Stafford Loans in your package.
Question No. 3: When should I apply for my federal student loan?
You can ask your college’s financial aid office, but the new year for federal student loans start July 1.
Question No. 4: What happens if I need to borrow more than the Stafford loan program allows?
Federal student loans are the superior loans — by far — for students who need to borrow, but there are limits to how much you can borrow. I’ll be covering other student and parent loan options soon.

More on Student Loans:

College Debt: Don’t Borrow More Than $27,000
12 Facts About Student Loan Borrowers
5 Things You Need to Know About Private School Loans
Lynn O’Shaughnessy is the author of The College Solution and she also writes a college blog for Follow her on Twitter.

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  1. Lynn,
    Thank you for this valuable information. I’d like to ask a quick follow on question related to the unsub Stafford eligibility. You mention here that the majority of subsidized Stafford Loans are awarded to students whose family’s adjusted gross income is less than $50,000. Is the subsidized eligibility and subsequent award that a student receives strictly based on federal guidelines and formula, or is there some ability by the school themselves to add some subjectivity to awarding the subsidized Stafford, similar to how schools are able to determine the distribution of SEOG grants?