If you're considering taking out a student loan, you may have heard of direct Stafford loans. But what are they, exactly? And how do they differ from other types of loans? In this post, we'll answer all your questions about direct Stafford loans and help you decide if one is right for you.
What Is a Direct Stafford Loan Table of Contents
What Is a Direct Stafford Loan?
If you're considering taking out a student loan to help pay for college, you may be wondering what a Direct Stafford Loan is. A Direct Stafford Loan is a type of federal student loan that is offered to undergraduate and graduate students. These loans are available through the William D. Ford Federal Direct Loan Program.
Direct Stafford Loans have fixed interest rates, meaning that the interest rate will not change over the life of the loan. The current interest rate for Direct Stafford Loans is 3.73% for undergraduates and 5.28% for professional students and graduates.
Interest on these loans begins accruing after graduation or when you cease to be enrolled at least half-time in an eligible program.
There are two types of Direct Stafford Loans: subsidized and unsubsidized.
Subsidized Student Loans
Subsidized loans are need-based, meaning that you must demonstrate financial need in order to qualify. These loans also have subsidized interest, which means that the government will pay the interest on your loan while you're in school and during certain periods of deferment.
Unsubsidized Student Loans
Unsubsidized loans are not need-based, and the interest on these loans accrues while you're in school.
What Are The Benefits of Direct Stafford Loans?
There are a few key benefits of taking out a Direct Stafford Loan:
- You can borrow up to $20,500 per year (or the cost of attendance minus any other financial aid you receive)
- The interest rate is fixed, meaning it will never go up or down during the life of your loan
- Direct Stafford Loans offer flexible repayment options, including the option to defer your loans while you're in school or during periods of economic hardship
- You may be eligible for interest rate discounts and student loan forgiveness programs if you make timely payments on your Direct Stafford Loan
Can I Get a Direct Stafford Student Loan If I Have No Credit?
Yes! One of the great things about federal student loans is that they're available to students with no credit history. That's because your loan is backed by the U.S. Department of Education, so there's no need for a credit check. So if you've never taken out a loan before, or if you have bad credit, you can still qualify for a Direct Stafford Loan.
How Much Money Can I Borrow With a Direct Stafford Loan?
The amount you can borrow with a Direct Stafford Loan depends on your financial need and whether you're an undergraduate or graduate student. For undergraduates, the maximum amount you can borrow per year is $20,500. For graduate and professional students, the maximum amount you can borrow per year is $20,500.
How Do I Apply for a Direct Stafford Loan?
To apply for a Direct Stafford Loan, you'll need to fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA is the federal government's way of determining how much financial aid you're eligible to receive.
You can complete the FAFSA online at fafsa.gov. Once you've submitted your FAFSA, your school will send you a financial aid award letter that outlines the types and amount of aid you're eligible to receive.
If you're interested in taking out a Direct Stafford Loan, you'll need to accept the loan offer and complete any additional steps required by your school. For example, some schools require you to complete an entrance counseling session before you can receive your loan.
When Will I Get My Direct Stafford Loan Money?
Your school will disburse your Direct Stafford Loan money in two installments, one at the beginning of each semester.
Before your loan money can be disbursed, you'll need to sign a promissory note agreeing to the terms and conditions of your loan.
Once you've signed your promissory note, your school will contact you to let you know when and how to sign up for direct deposit. Once you've signed up for direct deposit, your loan money will be deposited into your bank account and you can use it to pay for tuition, fees, room and board, books and supplies, or other education-related expenses.
The timing of your loan disbursement also depends on whether your school uses the standard or accelerated disbursement schedule. If your school uses the standard schedule, your loan will be paid in two installments. The first installment will be paid at the beginning of your enrollment period (for fall semester loans, this is typically 30 days after classes begin). The second installment will be paid approximately halfway through your enrollment period (for fall semester loans, this is typically 30 days before classes end). If you have a half-time enrollment status or greater at any point during the academic year, you may request that your second installment be released early.
If your school uses the accelerated schedule, your loan will be paid in two installments. The first installment will be paid at the beginning of your enrollment period (for fall semester loans, this is typically 30 days after classes begin). The second installment will be paid approximately three weeks later. If you have a half-time enrollment status or greater at any point during the academic year, you may request that your second installment be released early.
What Are the Interest Rates for Direct Stafford Loans?
The interest rate for Direct Stafford Loans is fixed at a low rate that's set by Congress each year. For loans first disbursed on or after July 01, 2020, the interest rate is 3.73% for undergraduates and 5.28% for graduate and professional students.
How Do I Repay My Direct Stafford Loan?
You'll begin repaying your Direct Stafford Loan six months after you graduate, leave school, or drop below half-time enrollment. Your loan servicer will contact you before your first payment is due to remind you of when and how much you need to pay.
You can choose from a variety of repayment plans, including the Standard Repayment Plan, which has a fixed monthly payment for up to ten years, and the Income-Based Repayment Plan, which sets your monthly payment at an amount that's based on your income and family size.
You can also choose to make interest-only payments while you're in school or during periods of economic hardship. If you don't make payments on your loan while you're in school or during periods of deferment or forbearance, interest will continue to accrue and will be added to your principal balance when you enter repayment. This is called capitalization.
What is The Principal Balance of My Student Loan?
The principal balance of your student loan is the amount you borrowed, plus any interest that has been capitalized. Your principal balance will increase if you choose to make interest-only payments or if you enter into deferment or forbearance, and it will decrease as you make regular monthly payments.
The best way to keep your student loan debt manageable is to stay on top of your payments and to make extra payments whenever you can. You can also try to lower your interest rate by consolidating your loans or refinancing your loan.
What Are the Fees for a Direct Stafford Loan?
There is an origination fee for Direct Stafford Loans. The origination fee is a one-time fee that's deducted from your loan money when it's first disbursed.
For loans first disbursed on or after October 01, 2020, the origination fee is 0.75% of the loan amount.
For example, if you borrow $5000, your origination fee would be $37.50 and you would receive $4962.50 in your account to use for educational expenses.
Stafford Loans also have a guarantee fee that's deducted from each loan disbursement and used to reimburse the government for losses incurred if a borrower defaults on their loan.
For loans first disbursed on or after October 01, 2020, the guarantee fee is 0.35% of the loan amount.
So if you borrowed $5000, your guarantee fee would be $17.50 and your total fees for the loan would be $55.
Do You Have to Pay Back the Direct Stafford Loan?
In short, yes. Stafford Loans, like all other types of financial aid, are intended to help students pay for college.
However, unlike grants or scholarships, loans must be repaid with interest.
It's important to remember that taking out a student loan is a serious responsibility. You should only borrow what you need and be sure to stay on top of your payments after you graduate.
What Is the Grace Period for Direct Stafford Loans?
The grace period is the time after you graduate, leave school, or drop below half-time enrollment before you have to begin repaying your loan. For Direct Subsidized Loans and Direct Unsubsidized Loans, the grace period is six months.
For Direct PLUS Loans for Parents and Graduate/Professional Students, there is no grace period. Repayment begins on the date the loan is fully disbursed (paid out). If you choose not to pay the interest that accrues during in-school deferment or during the grace period, it will be added to your principal balance (capitalized) when repayment begins. This will increase the amount of interest you pay over the life of the loan.
Do I Have to Accept the Direct Stafford Loan?
You are not required to accept the full amount of your Direct Stafford Loan. If you choose to decline some or all of your loan, notify your financial aid office in writing as soon as possible. You may also reduce the amount of your loan at any time by contacting your financial aid office. Keep in mind that if you reduce or cancel your loan after your school has already disbursed it, you may be responsible for returning some or all of the money (this is called "loan repayment"). Also, if you accepted your loan but then change your mind, you have up to 120 days from the date you received the first disbursement of funds to cancel all or part of a Direct Stafford Loan.