Federal Direct Stafford Loans

Federal Direct Stafford Loans are available to qualifying U.S. citizens, permanent residents and students with other acceptable citizenship or immigrant status (such as refugee status). Students must complete a Free Application for Federal Student Aid (FAFSA) for each academic year for which they wish to receive a Stafford Loan.

Through the 2011-12 fiscal year, which ends on June 30, 2012, graduate and professional students, including law students, may be considered for both subsidized and unsubsidized Stafford loans. The difference between a subsidized Stafford loan and an unsubsidized Stafford loan is that the federal government pays the interest on a subsidized Stafford loan while the student is in school at least half time, during the student's six-month grace period and during any periods of deferment. Both the subsidized and unsubsidized Stafford loans carry a 6.8% interest rate, but the interest on the unsubsidized Stafford loan begins accruing at the time of disbursement and is never paid by the government. The maximum annual subsidized Stafford loan amount is $8,500; the maximum annual combined subsidized and unsubsidized loan is $20,500 and the maximum cumulative (combined) Stafford loan amount is $138,500, with no more than $65,500 of that attributable to subsidized loans.

Beginning July 1, 2012, graduate and professional students will no longer be eligible for subsidized Federal Stafford Loans. Students will still be able to borrow up to $20,500 per academic year, but the funds will be all unsubsidized.

Federal Stafford Loans are also subject to an origination fee of 1%. Through the 2011-12 fiscal year, the federal government gives students an up-front rebate of .5%, leaving the net disbursement amount of the loan at 99.5%. As long as the student makes his/her first 12 payments on time once the Stafford loans go into repayment, the .5% rebate becomes permanent. If a student does not make the first 12 payments in a timely manner, the .5% is added back to the student's loan balance.

Beginning July 1, 2012 the up-front rebate will cease and the student will receive a net loan disbursement of 99% of the loan.

Stafford loans need not be repaid while the student is attending school at least half time. However, once a student graduates or drops to less than half time or withdraws from school, the grace period starts running. The grace period is a six-month period of time which gives the student time to find a job and being working before payments are due. For subsidized Stafford loans, the government continues to pay the student's interest during those six months. At the end of the grace period, the student's repayment period begins. However, students who are not able to begin making payments at that time may qualify for a deferment or forbearance to temporarily eliminate or, in the case of a forbearance, reduce or eliminate payments for a set period of time. Deferments for Stafford loans include in-school deferments for students returning to school at least half time in an eligible program; unemployment deferments for students who are unable to secure a full-time (30 or more hours) job; economic hardship deferments for students who are working but whose income is too low in relationship to their student loan debt to be able to make payments, and others. Deferments are related to when the student borrowed the loan, as loan deferment requirements have changed over the years, so students should check the terms of their Stafford Loan Promissory Note(s) or with their lender, servicer or the federal government to find out what deferments may be available to them.

While a deferment is a right for students who meet the qualifications and apply for the deferment in a timely manner, a forbearance can be at the lender or servicer's discretion. However, any time a borrower in repayment knows that s/he will not be able to make a scheduled payment, s/he should contact the loan servicer immediately to apply for a forbearance so as not to miss scheduled payments and negatively impact the borrower's credit. Staying in touch with the lender or servicer is the best thing to do!