All About Stafford Loans
The Stafford loan is the most popular type of student loan. Here is what you need to know.
The Stafford loan is the main federal loan coming from the government. There are two types of Stafford loans, Subsidized and unsubsidized.
Subsidized Stafford
The subsidized Stafford loan is the best option for a college studentIf a student qualifies for this loan, the government will pay the interest cost as long as a student is enrolled full time in college. As soon as the student graduates, or stops going full time, he or she has six months until the government stops covering the interest cost. So, for example:
1. Student applies and qualifies for subsidized loan totaling $1,350 per semester. 2. A qualified bank writes the check to the student, mails it to the school, and the school distributes the funds. 3. Government begins paying the bank interest on the students behalf. 4. One year later student graduates. 4. Six months later a bill with the loan balance principal and an annual interest cost arrives in the mailbox.
Subsidized Stafford loans are granted to students based on need. The need is determined by the parents income if the student is considered dependent or by the students income if they are considered independent.
Unsubsidized Stafford
An unsubsidized Stafford loan works just like the other version, except the student is responsible for the interest. This version works just like an auto loan. The principal is broken down into a payment schedule. Each month a bit of interest and a bit of principal is owed to the lender. The one difference from a regular bank loan is the student has a choice to not make the payments until after graduation or dropping to less than full schedule. But if you choose to take this route interest will accrue during your college life and you get hit with a giant bill come graduation.
Starting this summer most of the rules surrounding Stafford loans are set to change. The current variable interest rate charged on the loans is scheduled to move to a fixed rate of 6.8 percent. Beginning July 1st 2007 the amount freshman and sophomore’s can borrow will change. Freshmen should be eligible to borrow $3,500 while sophomores will be allowed to borrow $4,500. The total amount an undergrad can borrow on this loan is $23,000.
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