Subsidized and Unsubsidized Stafford Loans
Stafford loans are federal loans that are paid directly to the college. These loans are in the student’s name and the student can deduct the loan interest. They have a fixed rate, currently at 4.45%, and are paid back over a ten year period. Each loan has an origination fee of 1.066% and there is disability and life insurance on the student to pay for forgiveness of the loan.
To apply for these type of loans a student must complete the FAFSA form. Once the financial aid forms are complete and sent to the colleges, each institution will send an Awards Letter to the student indicating the amount of Stafford loans the student qualifies for. Student loans are part of the self-help portion of the Award Letter offerings.
By accepting a Stafford loan, a student is signing a Master Promissory Note (MPN) accepting the terms and conditions of the loan, as well as, promising to repay the federal government. The original MPN will cover subsequent Stafford loans.
First time borrowers are required to complete an Entrance Counseling session before funds are dispersed to the college. At the time of graduation or withdrawal from college the student is required to complete an Exit Counseling session, as well. Each session is done online and outlines the details and conditions of the different loans.
Funds are dispersed directly to the college in two installments. Half of the loan will be sent no sooner than 30 days after the beginning of the student enrollment period for each semester.
Repayment of Stafford loans begins six months after the student leaves college.
Two types of Stafford loans
Subsidized and Unsubsidized.
Subsidized loans are Need Based and the student must demonstrate a financial need. While in college the interest due on the loan will be paid by the federal government. Subsidized loans are considered financial aid.
Unsubsidized loans are not based on need but still require completion of the FAFSA form. The interest on these loans are not paid by the federal government and will accrue. Unsubsidized loans are not considered financial aid.
Loan limits are as follows for dependent students:
- Freshman year $5,500 ($3,500 Subsidized maximum)
- Sophomore year $6,500 ($4,500 Subsidized maximum)
- Junior year $7,500 ($5,500 Subsidized maximum)
- Senior and higher $7,500 ($5,500 Subsidized maximum)
- Maximum limit $31,000 ($23,000 Subsidized maximum)
Special Circumstances
There are special circumstances when additional loan amounts are available for Unsubsidized Stafford loans. This situation applies when a parent can’t qualify for a Parent Plus loan due to poor credit. Under this scenario a student can borrow an additional $4,000 for freshman and sophomore years and an additional $5,000 for junior, senior and higher.
For Independent Students the limits for Stafford loans are the same as the special circumstances listed above.
If you have any questions about funding your or your student’s college, give us a call at 508-815-4935.