What Is a Federal Stafford Loan

A Federal Stafford Loan is a loan structured under the Federal Student Loan Program that allows undergraduate and graduate students to borrow money to attend college. They are designed to supplement a student's personal finances and family contributions to higher education. Students must fill out a Free Application for Federal Student Aid (FAFSA) in order to qualify for Federal Stafford Loans, among other types of federal financial aid.

There are many benefits of a Federal Stafford Loan. Just about everyone can qualify for one, no matter their personal financial history or credit score. The loans can be subsidized by the U.S. Government, or unsubsidized. Subsidized means that interest will not accrue while the student is in school. These loans are also based on the financial need of the student. Unsubsidized Stafford loans allow interest to accrue from the loan disbursement date. These loans are also not necessarily based on the student's financial needs.

To qualify for a Federal Stafford Loan, a student must be enrolled at least part-time at a recognized school. Money from a Federal Stafford Loan can be used for education expenses, including tuition, books, rent and fees. Awarded amounts will vary based on the student's circumstances as outlined in the FAFSA.

A Federal Stafford Loan features several repayment options. The Standard Repayment Plan asks that students pay a fixed amount based on the total amount plus interest. A Graduated Repayment Plan gives students the chance to make lower payment for the first few years, and then payments increase over time. An Income-Sensitive Repayment Plan outlines how students will make a monthly payment based on their annual income, which can change each year. An Extended Repayment Plan allows students to repay loans in various ways up to 25 years.

A Federal Stafford Loan does not have any prepayment or early payment penalties as some loans do. There are some fees associated with the Federal Stafford Loan, generally less than 1 percent of the loan amount. Depending on the lender, some guarantee fees and origination fees may also apply. However, these fees are most often deducted from the loan amount before funds are sent to the college or vocational school for disbursement.

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Many different types of federal financial aid are available, including Pell Grants, Perkins Loans, Stafford Loans and PLUS Loans, so learning about the various options is an essential first step in any strategy for financing a college education.

A student can expect to qualify for a Federal Pell Grant if he or she meets certain conditions set forth in the application process. Generally, Federal Pell Grants are awarded to families who apply for a Pell Grant with incomes of less than $20,000, although there are exceptions based on a student's total criteria.

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