Student Loans: What is a Direct Stafford Loan?

Direct Stafford Loan is one of the common student loans available to undergraduate and graduates students in U.S.  Direct Stafford Loan is a federal student loan and it is guaranteed by the U.S government.  Direct Stafford Loans can also be referred to as Direct Loans. The interest rates on the loans are usually fixed and are lower than that of private loans. So, if you are a graduate or undergraduate student seeking for student loans, Direct Stafford Loan can actually be a good option for you as this will help you save some cost on interest payments. Not just because the interest rates are low, you may not need to pay interest on the loan while in school or within six months after you have left school. However, this depends on the type of Direct Stafford Loan you get. Basically, there are two types of Direct Stafford Loans namely Subsidized Direct Loans and Unsubsidized Direct Loans. I will explain the two loans below so that you can have a better understanding about their features.

Types of Direct Stafford Loans

Subsidized Direct Loans: Subsidized Direct Loans are available to undergraduate students that demonstrate financial needs. Demonstrated financial needs represent the difference between total college costs and the ability to pay by your family. You will need to submit your completed financial aids application. Thereafter, the college will calculate your demonstrated financial needs based on your family income, assets, the size of your family and the college costs. Essentially, Subsidized Direct Loans are for low income students. Starting from July 1, 2013, there is a limit to how much students can borrow under this financial aids program. Students cannot receive Subsidized Direct Loans for more than 150% of the length of their program. But if you change your program into another undergraduate program that is longer than your previous program, you may have your eligibility period extended too.

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In this type of Direct Stafford Loan, students don’t pay interest on their loans while in school at least half time, during grace period or a period of deferment. Grace period represents the first six months after you leave school. This does not mean that the loan will not accrue interest during these periods.  The government through the U.S Department of Education will help the borrowers pay the interest. That is why it is called Subsidized Stafford Loan. The above notwithstanding, if you received your subsidized loan between July 1, 2012 and July 1, 2014, you will be responsible for the payment of any interest that accrued on your loan during the six months grace period.  You have the option of paying the interest or you can choose to roll the interest into your loan balance.

Unsubsidized Direct Loans: This Direct Stafford Loans are available to graduate, undergraduate, professional degree students and you don’t need to demonstrate financial needs before you can be granted the loan. Also the maximum eligibility period of 150% of the length of the program does not apply here. It is your school that will decide on how much you can borrow considering your college costs and other financial aids you enjoy.  Under this Direct Stafford Loan, students are responsible for the interest that accrues on their loans while in school, during grace period and deferment or forbearance period. However, just like Subsidized Direct Stafford Loans, you have the option of paying the interest or you can choose to roll the interest into your loan balance.

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Eligibility for Direct Stafford Loans

Whether you want to apply for either of the two Direct Stafford Loans, that is, Direct Subsidized Loans or Unsubsidized Direct Loans, there are basic eligibility requirements you must meet. You must be enrolled for minimum of half time at a school that participates in Direct Stafford Loan Program. You must enrol in a program that leads to the award of a degree or certificate by the school. Specifically, only undergraduates with demonstrated financial needs can apply for Subsidized Direct Loans. But for Unsubsidized Direct Loans, you don’t have to demonstrate financial needs to apply. It is open to undergraduate, graduate and professional degree students.

Direct Stafford Loan Rates

I mentioned above that the interest rates on Direct Stafford Loan Program are considerably low compared to what you will pay on private student loans. Furthermore, the interest rates on Federal Student Loans are fixed rate. This means that the interest rates remain unchanged throughout the life of the loans. Nevertheless, the interest rate you will pay depends on the type of Direct Stafford Loan that you receive. The interest rates on Direct Loans disbursed on or after July 1, 2017 and before July 1, 2018 are as follows:

Direct Subsidized Loans for undergraduate students: 4.45%
Direct Unsubsidized Loans for undergraduate students: 4.45%
Direct Unsubsidized Loans for graduate and professional students: 6.00%

Besides the interest, you may need to pay a loan fee which is a percentage of your loan amount. The percentage that will apply to you depends on when you your loan was first disbursed to you. If you received your student loan on or after October 1, 2016 and before October 1, 2017, the loan fee would be 1.069%. But if you received your student loan on or after October 1, 2017 and before October 1, 2018, the loan fee would be 1.066%.

Read Also: Student Loans: Useful Guide to Students and Parents

How to Apply for Direct Stafford Loan

For every Federal Loans applicant, there is a procedure you need to follow. If you want to apply for Direct Stafford Loan, you will need to complete this process.

  • You will need to complete Free Application for Federal Student Aids (FAFSA) whether you are a first timer or a returning student. You will need to choose the school year for which you are applying for financial aids. FAFSA is free, so you should not allow anybody to defraud you by asking you to pay for it. You can use any of the three available options to file your FAFSA.
    • You can complete your FAFSA online
    • You can complete PDF FAFSA and mail to Federal Student Aid
    • Call 1-800-4-FED-AID (1-800-433-3243) or 334-523-2691 to request for paper FAFSA.
  • Thereafter, you will receive a financial aid award letter from the financial aid office of your school. The school will advise you on the financial aids that you are eligible for, based on the information you provided on your FAFSA. You don’t apply for Direct Stafford Loan separately. It is part of your financial aid package.
  • You will sign Master promissory Note (MPN): The Master promissory Note will contain the terms and conditions of your loan which you must agree to. By signing the MPN, you promise that you will repay your loan and any accrued interest and fee. You will need to sign the Master promissory Note before your loan can be disbursed to you. Once you sign it, it becomes a legal document which you must abide with all that is contained therein.

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