Federal Stafford Loans

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More and more, students must look for sources other than their parents and families in order to pay their college expenses. Recognizing this, the federal government has established a student loan program to enable more students to obtain a college education. They come in two forms: subsidized and unsubsidized.

Subsidized Stafford Loans

This one is the best choice because the interest rates are fixed and low; no money must be paid while the student is enrolled in college; no interest accrues while the student is enrolled (the federal government pays the interest while the student is in school); and acceptance is not based on credit. The maximum available: freshman, $3,500 per year; sophomore, $4,500; junior $5,500; senior and 5th year, $5,500.

Not everyone is eligible for a subsidized Stafford loan. The following qualifications must be met:

• Must be a U.S. Citizen or eligible non-citizen
• Must be enrolled at least half-time in an accredited school
• Must complete the Free Application for Federal Student Aid (FAFSA)
• Must have high-school diploma or GED
• Can’t be in default on any federal loan

More importantly, subsidized Stafford Loans are issued based on financial need.

Unsubsidized Stafford Loans

This loan is not based on financial need as opposed to the subsidized one. The interest clock kicks in as soon as the money is sent to the school. You will have six months after graduation or six months after you fall below half-time status before payments begin. Advantages of unsubsidized Stafford loans include:

• Limits are higher
• There is a fixed interest rate
• No payments are required while student is enrolled in school

The maximum available in these loans for independent students: freshman, $6,000; sophomore, $6,000; junior, $7,000; senior and fifth year, $7,000. For dependent students, the $2,000 is the max each year.

Students who choose to finance their college educations by using these loans need to be aware that they will have a sizeable burden in the first the first years after they graduate and go to work. However, for many families this is the only alternative. Stafford loans do offer a variety of plans for repayment designed to help the recent graduate manage the costs.