The most common federal loans received by students is Stafford loans.
In order to apply for a Stafford loan, you must be a U.S. citizen or an eligible non-citizen, and must have received your high school diploma or equivalent. You must also be an undergraduate, graduate, or professional student, and be enrolled at least half-time in an accredited degree or certificate program. You are not eligible for a Stafford loan if you are in default on any other student loans. To receive a Stafford loan, you must submit a FAFSA form, and sign a promissory note, a document stating you agree to repay the funds based on the terms of the loan.
Stafford loans are funded by the federal government, through the Federal Direct Student Loan Program (FDSLP) or by financial institutions such as banks, credit unions, or savings and loan associations, through the Federal Family Education Loan Program (FFELP).
Stafford loans can either be subsidized or unsubsidized. Subsidized loans are based on financial need, and have better terms. If your Stafford loan is subsidized, the loan’s interest is paid by the government while you’re still in school, and for the first 6 months after you graduate. Qualified applicants can even have their payments deferred. This means you can postpone making payments until later.
Regardless of financial need, unsubsidized loans are available to all students. If your Stafford loan is unsubsidized, you are responsible for paying the interest while you’re in school. You do have the option, however, of having your payments deferred until after graduation. By deferring the payments, the interest is accumulated and added to the total loan balance (capitalized). In some cases, you may have the option to combine subsidized and unsubsidized loans.
Based on your dependency status and academic standing, your school determines the amount you can borrow. A 4% fee is taken from the total amount of money lent. The loan is distributed by your school in two installments. Any money left over will be given to you in the form of a check, or can be set aside. You must begin making payments on your loan 6 months after you graduate, or if the number of credit hours you’re taking falls below half-time status. Depending on the amount of money borrowed and the plan received, you’ll have somewhere between 10 and 30 years to repay your loan.