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What is a Direct Stafford loan?

A Direct Stafford Loan is a loan given by the US Federal government to undergraduate and post-graduate students[i]. These loans are given to students for educational purposes and need to be repaid by the students after completion of their course of study. These loans are given to students under the William D Ford Federal direct loan program.

Types of Direct Stafford loans

There are two types of Direct Stafford loans. They are:

  1. Subsidized loans: These are loans given for the meritorious and needy students. A limited number of subsidized loans are available. The US Department of Education pays the interest for these loans, which means the students need not pay interest on this loan. They only have to repay the principal amount after they complete the course or if they drop out.
  2. Unsubsidized loans: For these loans interest has to be paid by the student. But it need not be paid immediately. The interest and principal can be paid on completion of the course or if the student drops out.

Amount given in the loan

For subsidized loans, the amount is based on the financial needs of the student.

For unsubsidized loans, the amount is based on the student’s financial need that is not met, meaning the fee to be paid by the school minus aid received.

Amount that can be borrowed

The year in which the student is studying and whether the student is dependent on parents or not determines the amount that a student can borrow under the Direct Stafford loan.

The following the maximum amount that can be borrowed for unsubsidized loans[ii]:

  • First year dependent students – $5,500; independent students – $3,500
  • Second year dependent students – $6,500; independent students – $4,500
  • Third year dependent students – $7,500; independent students – $5,500
  • For graduate students aggregate loan limit is $20,500 irrespective of dependency status.

The aggregate loan limit is $31,000 for dependent students and for independent students, it is $57,500 for undergraduates and $138,500 for graduates.

For subsidized loans, the maximum amounts are the same for both dependent and independent students. This is $3,500 for first-year students, $4,500 the for second year, $5,500 for the third year, with the aggregate limit being $23,000.

Eligibility for a Direct Stafford loan

US citizens who are enrolled at least half-time in an accredited educational institution are eligible. They should have a good academic standing and should not have defaulted of any previous student loan.

Applying for a Direct Stafford loan

The first step is to apply for FAFSA (Free Application for Federal Student Aid). This can be done online at their website fafsa.ed.gov

Complete details of the student, details of loan taken / aid received, repayment details, as well as financial details, need to be provided in the application form. Required documents may need to be submitted. The name of the college the student intends to join should be indicated.

The school applied for would send a financial aid letter, based on the FAFSA approval. Eligibility for the direct subsidized loan will be indicated in the letter.

The financial aid would be received by the school. The student should contact the school and complete any paperwork, like signing the promissory note.

Repayment can be done after course completion or if the student drops out. Easy repayment schedules are offered for students. The standard period for repayment is 10 years.

A Direct Stafford Loan is given to students for their education. This may be subsidized wherein interest is paid by the government. Loans can be cleared within 10 years and need not be paid till course completion.

[i] https://fafsa.ed.gov/help/staffordloan.htm

[ii] https://www.experian.com/blogs/ask-experian/what-is-a-direct-stafford-loan/