Direct and FFEL Stafford Loans

Direct and FFEL Stafford Loans are the Department's major form of self-help aid. Direct Stafford Loans are available through the William D. Ford Federal Direct Loan (Direct Loan) Program and FFEL Stafford Loans are available though the Federal Family Education Loan (FFEL) Program.

The terms and conditions of a Direct Stafford or a FFEL Stafford are similar. The major differences between the two are the source of the loan funds, some aspects of the application process, and the available repayment plans. Under the Direct Loan Program, the funds for your loan are lent to you directly by the U.S. government. If your school does not participate in Direct Loans, the funds for your loan are lent to you from a bank, credit union, or other lender that participates in the FFEL Program.

The Direct and FFEL programs also offer PLUS Loans for parents of dependent students and Consolidation Loans.

What kinds of Direct and FFEL Stafford Loans are available?

Direct and FFEL Stafford Loans are either subsidized or unsubsidized. A subsidized loan is awarded on the basis of financial need. You will not be charged any interest before you begin repayment or during authorized periods of deferment. The federal government "subsidizes" the interest during these periods.

An unsubsidized loan is not awarded on the basis of need. You'll be charged interest from the time the loan is disbursed until it is paid in full. If you allow the interest to accumulate, it will be capitalized--that is, the interest will be added to the principal amount of your loan and additional interest will be based upon the higher amount. This will increase the amount you have to repay. If you choose to pay the interest as it accumulates, you'll repay less in the long run.

You can receive a subsidized loan and an unsubsidized loan for the same enrollment period.

Who can get a Direct or FFEL Stafford Loan?

If you're a regular student enrolled in an eligible program of study at least half time, you may receive a Direct or FFEL Stafford Loan. You must also meet other general eligibility requirements.

How much can I borrow?

If you're a dependent undergraduate student you can borrow up to

• $2,625 if you're a first-year student enrolled in a program of study that is at least a full academic year.

• $3,500 if you've completed your first year of study and the remainder of your program is at least a full academic year.

• $5,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year.

If you're an independent undergraduate student or a dependent student whose parents are unable to get a PLUS Loan, you can borrow up to

• $6,625 if you're a first-year student enrolled in a program of study that is at least a full academic year (only $2,625 of this amount may be in subsidized loans).

• $7,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (only $3,500 of this amount may be in subsidized loans).

• $10,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year (only $5,500 of this amount may be in subsidized loans).

For periods of study that are less than an academic year, the amounts you can borrow will be less than those just listed. Talk to your financial aid administrator to find out how much you can borrow.

NOTE: Direct and FFEL Stafford Loans are not made to students enrolled in programs that are less than one-third of an academic year.

Generally, if you're a graduate student, you can borrow up to $18,500 each academic year. (Only $8,500 of this amount may be in subsidized Stafford loans.)

NOTE: The amounts given above are the maximum yearly amounts you can borrow in both subsidized and unsubsidized loans. You may receive less than these yearly maximum amounts if you receive other financial aid that is used to cover a portion of your cost of attendance.

The total debt you can have outstanding from all Stafford Loans combined is

• $23,000 as a dependent undergraduate student.

• $46,000 as an independent undergraduate student (only $23,000 of this amount may be in subsidized loans).

• $138,500 as a graduate or professional student (only $65,500 of this amount may be in subsidized loans). The graduate debt limit includes any Stafford Loans received for undergraduate study.

NOTE: Your school can refuse to certify your loan application or can certify a loan for an amount less than you would otherwise be eligible for, if the school documents the reason for its action and explains the reason to you in writing. The school's decision is final and cannot be appealed to the U.S. Department of Education.

How will I receive my Direct or FFEL Stafford Loan?

For a Direct Loan the U.S. Department of Education will pay you through your school. For a FFEL Stafford Loan, the lender will send the loan funds to your school. In most cases, your loan will be disbursed in at least two installments; no installment can be greater than half the amount of your loan.

Your loan money must first be used to pay for your tuition and fees, room and board, and other school charges. If loan money remains, you'll receive the funds by check or in cash unless you give the school written permission to hold the funds until later in the enrollment period.

If you're a first-year undergraduate student and a first-time borrower, your first payment may not be disbursed until 30 days after the first day of your enrollment period. This way, you won't have to repay the loan if you don't begin classes or if you withdraw during the first 30 days of classes. (However, you may owe money to the school for a portion of tuition or other fees.)

Will I have an opportunity to cancel my loan after I apply?

Yes. Your school must notify you in writing whenever it credits your account with your Direct or FFEL Stafford Loan funds. This notification must be sent to you no earlier than 30 days before, and no later than 30 days after the school credits your account. You may cancel all or a portion of your loan by informing your school that you wish to do so within 14 days after the date that your school sends you this notice, or by the first day of the payment period, whichever is later. Your school can tell you the first day of your payment period. If you receive Stafford Loan funds directly by check, you may refuse the funds by not endorsing the check.

What's the interest rate charged on these loans?

If you have a loan that was first disbursed on or after July 1, 1994, the interest rate could change each year of repayment but it will never exceed 8.25 percent. The interest rate is adjusted each year on July 1. You'll be notified of interest rate changes throughout the life of your loan.

If you had loans that were first disbursed before July 1, 1994, the interest rate on these loans may be different. Check with the lender or agency that holds your loan.

If you have subsidized loans, you will not be charged interest while you're enrolled in school at least half time, during a grace period, or during authorized periods of deferment. Interest will begin to accrue--that is, accumulate--when you enter repayment.

If you have unsubsidized loans, you'll be charged interest from the day the loan is disbursed until it is repaid in full, including in-school, grace, and deferment periods. You may choose to pay the interest during these periods, or it can be capitalized.

Is there a charge for these loans?

You'll pay fees of up to 4 percent of the loan. These fees are deducted proportionately from each disbursement of your loan. For a FFEL Stafford Loan, a portion of this fee goes to the federal government to help reduce the cost of the loans. For a Direct Stafford Loan, all of this fee goes to the government to help reduce the cost of the loans. Also, if you don't make your loan payments when they're scheduled, you may be charged collection costs and late fees.

When do I pay back these loans?

After you graduate, leave school, or drop below half time enrollment, you have six months before you begin repayment. This is called a "grace period."

During the grace period on a subsidized loan, you don't have to pay any principal, and no interest will be charged. During the grace period on an unsubsidized loan, you don't have to pay any principal, but interest will be charged. You can either pay the interest or it will be capitalized.

After you leave school or drop below half time enrollment, you'll receive information about repayment and will be notified of the date repayment begins. However, you're responsible for beginning repayment on time, even if you don't receive this information.

Is it ever possible to postpone repayment of my loan?

Yes. Under certain circumstances, you can receive a deferment or forbearance on your loan. A deferment allows you to temporarily postpone payments on your loan. If you have a subsidized loan, you will not be charged interest during the deferment. If your loan is unsubsidized, you will be responsible for the interest on the loan during the deferment. If you don't pay the interest as it accrues, it will be capitalized. See the Loan Deferment Summary for the list of deferments available if your loan was first disbursed on or after July 1, 1993.

For information on deferments for loans disbursed prior to that date, Direct Stafford Loan borrowers should contact their Direct Loan Servicing Center. FFEL Stafford borrowers should contact the lender or agency holding the loans. You can't receive a deferment if your loan is in default.

If you are temporarily unable to meet your repayment schedule but are not eligible for a deferment, you may receive forbearance for a limited and specified period. During forbearance, your payments are postponed or reduced. Whether your loans are subsidized or unsubsidized, you will be charged interest. If you don't pay the interest as it accrues, it will be capitalized.

For example, you may be granted forbearance if you are

• unable to pay due to poor health or other unanticipated personal problems.
• serving in a medical or dental internship or residency.
• serving in a position under the National Community Service Trust Act of 1993 (forbearance may be granted for this reason for a Direct or FFEL Stafford Loan, but not for a Direct or FFEL PLUS Loan).
• obligated to make payments on certain federal student loans that are equal to or greater than 20 percent of your monthly gross income.

Deferments and forbearances are not automatic. If you have a Direct Stafford Loan, you must contact your Direct Loan Servicing Center to request either option. If you have a FFEL Stafford Loan, you must contact the lender or agency that holds your loan. For either program, you may have to provide documentation to support your request. You must continue making scheduled payments until you receive notification that the deferment or forbearance has been granted.

Can my loan be discharged (canceled)?

Yes, in certain circumstances. A discharge releases you from all obligation to repay the loan. A complete listing of discharge conditions is given in the Discharge/Cancellation Summary.

Your loan can't be discharged because you didn't complete the program of study at the school (unless you were unable to complete the program because the school closed), didn't like the school or the program of study, or didn't obtain employment after completing the program of study.

Repayment assistance (not a discharge but another way to satisfy your obligation to repay) may be available if you serve in the military. For more information, contact your recruiting officer.

For more information about discharge or repayment assistance, Direct Stafford Loan borrowers should contact the Direct Loan Servicing Center. FFEL Stafford Loan borrowers should contact the lenders or agencies that hold their loans.

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