LOANS - William D. Ford Federal Direct Loan Program

Direct Loans are long-term, low-interest loans from the U.S. Department of Education.  This is the largest federal aid program and it consists two types of Federal Direct Student Loans: subsidized and unsubsidized.

Subsidized Stafford loans are based on financial need. The federal government pays the interest for the student during the following periods:

• While the student is in school
• During the six-month grace period after the student leaves school, or after the student drops below half-time attendance
• During deferments (periods when payments are temporarily postponed)

Unsubsidized Stafford loans are not based on financial need. Unsubsidized Stafford loans are for students who do not qualify for a subsidized loan or to supplement a student's subsidized loan. Students are responsible for paying all of the interest on unsubsidized loans.

Interest rate and fees

• Beginning July 1, 2008, the interest rate on Stafford loans is fixed at 6.0 percent.
• Federal law requires certain fees be charged for each loan made, including an origination fee and a federal default fee (previously called a guarantee fee) for each loan made. The law specifies the maximum amount of each fee and authorizes both fees to be deducted from the loan amount. If a fee is charged to the borrower, the fee is deducted from the loan proceeds when the money is sent to the student's school.

How to apply

Students can request Stafford loans by completing the Free Application for Federal Student Aid (FAFSA). The FAFSA can be filled out online at www.fafsa.ed.gov.

Students are asked to list the schools they are considering, and information from the FAFSA will be sent to each of the schools. The school generally informs students of the financial aid programs for which they qualify (including Stafford loans) and of the next steps required to receive the Stafford loan and other financial aid.

Loan amounts

Schools decide how much students can borrow in Stafford loans, based on federal law. Students with financial need will receive as much as possible in subsidized Stafford loans.

The most that students can borrow in subsidized and unsubsidized Stafford loans is equal to the student's estimated cost of attendance minus other estimated financial aid and resources, without going over the maximum amounts permitted for the student's academic level.

Who qualifies

Stafford loans are available to undergraduate students and graduate students who are:

• U.S. citizens or eligible non-citizens
• Enrolled or accepted for enrollment at least half time in an eligible program at an eligible school
• Registered with the U.S. Selective Service System (for males not exempt from registration)

Borrowers may not qualify if they have adverse credit, have defaulted on a federal education loan, owe an overpayment on other federal education aid, have been convicted of a drug-related offense while receiving federal student aid, or are incarcerated. The borrower also may be ineligible if, while receiving federal student aid, they have been convicted of or have pled nolo contendere or guilty to a crime involving fraud in obtaining Title IV funds and have not completed the repayment of such funds.

Full details on eligibility are provided with the Federal Stafford Loan Master Promissory Note, the form students sign to obtain Stafford loans.

Paying back the loan

No payment of principal is required while the student is in school or for six months afterward. On subsidized Stafford loans, the interest is paid by the federal government during this time. On unsubsidized Stafford loans, the student is responsible for all interest. Students begin repaying Stafford loans six months after they leave school, or drop below half-time enrollment. In addition:

• A $50-per-month minimum payment is required unless the borrower makes other arrangements with the lender.
• The payment amount must be at least equal to the monthly interest due on the loan.
• The standard repayment term is generally 10 years.
• Borrowers may choose a repayment plan suited to their needs. Lenders can provide details.
• Stafford loan borrowers may have their payments temporarily postponed under certain conditions (an option known as deferment).

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