Stafford Loan is a student loan offered to eligible students enrolled in accredited American institutions of higher education to help finance their education. The terms of the loans are described in Title IV of the Higher Education Act of 1965 (with subsequent amendments), which guarantees repayment to the lender if a student defaults.

In 1988, Robert Renaud, the Federal Guaranteed Student Loan Program of the Robert T. Stafford Student Loan Program, in honor of the US Senator Robert Stafford , a Republican of Vermont , for his work on higher education. [1]

Because the loans are guaranteed by the full faith of the US government, they are offered at a lower interest rate than the borrower would otherwise be able to get for a private loan. On the other hand, there are strict eligibility requirements and borrowing limits on Stafford Loans.

Students for a Stafford Loan or other federal financial aid must first complete FAFSA . Stafford Loans are available to students Directly from the United States Department of Education through the Federal Direct Student Loan Program (FDSLP, Also Known As Direct).

No major payments are expected on the loan while the student is enrolled at least half-time, referred to as in-school deferment. Deferment of repayment continuing for six months after the student leaves school by graduating, dropping below half-time enrollment, or withdrawing, referred to as the grace period.

Stafford Loans are available both as subsidized and unsubsidized loans. Subsidized loans are offered to students based on demonstrated financial need. (See Expected Family Contribution .) The interest on subsidized loans is paid by the federal government. For unsubsidized Stafford Loans, students are responsible for all of the increased interest while the student is enrolled in school. The interest may be deferred throughout enrollment. Unpaid interest is deferred until after graduation is capitalized (added to the principal loan).

The Budget Control Act of 2011 eliminated Subsidized Stafford loans for graduate and professional students effective July 1, 2012. [2] Unsubsidized Stafford loans are still available to students thesis.

Interest rates

Interest rates on Stafford Loans may vary and are based on the date the loan was disbursed. They may also vary by the education level (undergraduate or graduate) of the student. Interest rates do not vary with default risk: all students receive the same interest rate. [3]

For variable rate loans, the rates are set using Annually the price of the 91-day Treasury bill on the last Monday of May, and for effective Become The Following year on July 1. For fiscal year 2008/2009, the 91-day Treasury Billauctioned on May 27, 2008 at 1.905% (rounded to 1.91%) was used for the calculation. [4] On May 26, 2009 the 91-day Treasury bill was auctioned at an investment rate of 0.178%. [5] On July 1, 2009, Stafford Loans were adjusted to 0.18%. Loans issued before July 1, 1998 were adjusted to a rate of 3.28%. Loans issued between July 1, 1998 and June 30, 2006 were adjusted to a rate of 2.48%.

As of July 1, 2006, all Stafford Loans are issued with a fixed interest rate. For direct loans and most loan providers, the rate is currently set at 6.80% for unsubsidized loans, with undergraduate loans, usually about 3.40%.

On August 9, 2013, President Obama signed the Bipartisan Student Loan Certainty Act of 2013, changing how student loan interest rates are determined. The Treasury rate, plus a small margin. The new rates are retroactive for all loans disbursed on or after July 1, 2013. That effectively reversed an increase in interest rate from 3.40% to 6.80% for affected loans. Federal student loan interest rates are fixed for the life of the loan; However, the rates for new loans will change annually, based on the current market. The interest rates for the 2013-2014 academic year are as follows: 3.86% for undergraduate Stafford Loans 5.41% for graduate Stafford Loans [6]

See also

  • Loan waiver

References

  1. Jump up^ http://www.cnn.com/2006/POLITICS/12/23/stafford.obit.ap/index.html
  2. Jump up^ Grad Students to Lose Federal Loan Subsidy
  3. Jump up^ Michael Simkovic,Risk-Based Student Loans(2012)
  4. Jump up^ Student Aid on the Web
  5. Jump up^ Institutional – 2009 Treasury Securities Auction Press Releases: 13-week Bills
  6. Jump up^ http://www.staffordloan.com/stafford-loan-info/interest-rates.php