Student Loan 101: All About Stafford Loans
By: BankingMyWay.com Staff

Federal Stafford loans are products designed to help college students pay for tuition at public and private institutions. These loans are offered at competitive, fixed interest rates to those students who have demonstrated financial need. Outside of the federal government, Sallie Mae (Stock Quote: SLM) is the largest Stafford loan provider in the country. Loans are given in various amounts, depending on individual circumstances, tuition costs and other considerations.

In order to qualify for a Stafford loan, you must begin the process by filling out a FAFSA (Free Application for Federal Student Aid) form. Typically, this is completed at some point during the senior year of high school, although continuing education students and older students can also submit a FAFSA at any time. Once your application is approved, the financial aid office of your desired institution will use this information to craft a financial aid package for you that includes a Stafford loan. Currently, Stafford subsidized loans have a fixed 5.6% interest rate, while unsubsidized Stafford loans feature 6.8% fixed interest rates.

The History of Stafford Loans
Government loans for college students date back to the Higher Education Act of 1965. With this act, the federal government created loan initiatives for eligible students enrolled in accredited American colleges and universities. Unlike private loans, these funds are guaranteed to the lender if the student defaults. This also helps keeps interest rates lower than private loans.

In 1988, Congress changed the name of the Federal Guaranteed Student Loan Program to the Robert T. Stafford Student Loan Program. Now known as simply “Stafford loans,” these funds were named after the republican senator from Vermont by the same name. Stafford worked diligently on causes related to higher education, and these loans are now given in honor of him.

Rules and Limitations
While you’re in school (either full or half time), you are not expected to make payments on your Stafford loan(s), although you can make elective payments without penalty. After school, you have a six-month grace period before your payments begin. If you are still struggling to make ends meet, you can apply for deferment or forbearance of your loans, depending on your unique situation.

In order to qualify for deferment, you must be enrolled at least half time in an eligible academic program. You also qualify if you are unemployed, yet seeking work. Deferment is available for up to 36 months and the government pays the interest accrued on subsidized loans during your deferment.

If you no longer qualify for deferment, you might consider forbearance. The difference between the two is that forbearance does not have a time limit, as long as you meet certain criteria. This includes serving in a medical or dental residency, serving in the Armed Forces or proving severe financial hardship.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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