Federal Stafford Loans - Guide to the Popular Federal Stafford Loan Program

Federal Stafford Loans are easily the most common federal loans used by students. They're an inexpensive borrowing option for students, and consequently form the foundation of most students' financial aid packages. Money from this program can be lent to both undergraduate and graduate level students, regardless of financial need. Stafford Loans can be subsidized or unsubsidized, with each option entailing different terms and interest rates.

There are maximum amounts which can be lent to students. This maximum limit varies depending on the student's year in school, and whether or not the student is a dependent of his/her parents.

The following table shows the maximum Stafford Loan amounts for undergraduate students for the 2013-2014 school year:

Dependent Independent
Freshman $3,500.00 $9,500.00
Sophomore $4,500.00 $10,500.00
Juniors and Seniors $5,500.00 $12,500.00
Dependent students may also apply for PLUS loans to secure more funding for school. However, if the dependent student is unable to secure a PLUS loan, he or she may borrow as much as an independent student.

The Stafford Loan Program imposes limits on how much a student can borrow over the course of their lifetime. Additionally, of these lifetime limits, only a certain percentage can be subsidized. The following table shows these lifetime limits based on student type:

Maximum Subsidized plus Unsubsidized Maximum Subsidized
Dependent Undergraduate $31,000.00 $23,000.00
Independent Undergraduate $57,500.00 $23,000.00
Graduate/Professional $138,500.00 $65,500.00
Medical $224,000.00 $65,500.00
The limit for graduate students includes money borrowed in undergraduate school.

Subsidized and Unsubsidized Stafford Loans

Subsidized Stafford Loans have better terms, and are awarded to students based on financial need. When the loan is subsidized, the government pays the interest while the student is still in school, and for six months after graduation. Nothing is added to initial value of the loan until after the student finishes school.

Unsubsidized Stafford Loans, on the other hand, accrue interest while the student is still in school. However, the student may choose to defer payments, meaning that they do not have to make payments until 6 months after graduation.

There's a limit to the amount of subsidized loans a student can receive. This limit is the same amount as the "dependent" maximum amounts in the first table. The maximum amount a sophomore student could receive in subsidized loans, for instance, is $4,500. Any additional funds received (up to the limit of $10,500) would be unsubsidized.

The federal government ended the subsidized loan program for graduate students. As such, graduate subsidized Stafford loans are no longer available.

Interest Rates and Fees

The Bipartisan Student Loan Certainty Act of 2013, signed by President Obama on August 9, 2013, changed the way in which student loan interest rates are calculated. Student loan rates are now linked to the Federal 10-year Treasury rate, with a small margin added. Once a loan is finalized, the interest rate is fixed for the loan's lifetime. The rates for new loans will vary each year, however, as the market fluctuates.

Currently, Stafford loan interest rates for undergraduate students are fixed at 3.86%, for both subsidized and unsubsidized loans. For graduate students, the interest rate is fixed at 5.41%.

Stafford loans also carry with them a fee, which is deducted partially from each installment the student receives. The fee for both subsidized and unsubsidized Stafford Loans is currently 1.051%.


Students must begin making payments on their Stafford Loan six months after they graduate, drop out, or fall below half-time status. These six months are referred to as the "grace period". During the grace period, interest is accrued for unsubsidized loans, but not for subsidized loans.

There are several payment plans available to students. A student may choose to make even payments over the course of 10 years, or increasing payments over 10 years. The option of income-sensitive payments is also available. For loans exceeding $30,000, students may choose to make even or increasing payments over the course of 30 years.

How to Apply

All students who wish to apply for a federal Stafford Loan (subsidized or unsubsidized) must complete a FAFSA form. This form is processed by the Office of Federal Student Aid, and then forwarded to the student's school. The school then informs the student of his/her loan eligibility and lender options. Before any funds can be disbursed, the recipient of the loan must sign a "master promissory note," which is a legal document stating that all funds will be repaid according to the terms of the loan.

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