What You Need to Know about Stafford Loans

The constitution of the United States asserts that it is the responsibility of the US government to “promote the general welfare” of its citizens. This line has been subject to scrutiny and analysis over the years. However, our elected officials generally agree that their most important job is to serve the American people. One of the ways that our government accomplishes this is through federal loans. It sees that every student, no matter their walk of life, can receive a college education if they are qualified.

A student standing in front of papers stuck to a wall.

Federal Loans

Federal loans have recently been a hot topic in the political arena, but this debate is hardly new. For many years, the Capitol has combed over and discussed the concept of federal loans. In 1965, they introduced the “Federal Guaranteed Student Loan Program”. In 1988, it was renamed in honor of one of its largest supporters, Senator Robert Stafford, a Republican from Vermont. Senator Stafford believed that the primary responsibility of a government is to ensure the well-being of its citizens. The senator considered the loan program to be one of the flagship achievements of his time in public service.

What is a Stafford Loan?

Since the program’s introduction in 1965, countless students have received Stafford loans. Over 30 million loans doled out in 2016. Since the government pays for these, Stafford loans offer a lower interest rate compared to private loans from firms such as SLM (Sallie Mae). The current interest rate for a Stafford loan is 3.76%. That’s compared to an average interest rate of more than 6% for an SLM loan. This ~2% difference provides vital breathing room for students who are in need of financial assistance.

When a student fills out a FAFSA form, they have the option of applying for a Stafford loan. To qualify, a student needs good credit. It is not likely that students will find themselves in a situation where they have accrued enough debt before college to have to default on it. This clause coming into play is a rare occurrence for first-time students. Additionally, students must be planning to attend college at least half-time, as determined by their school’s credit requirements. They must also be citizens of the United States. If you meet all of these requirements, you are eligible for a loan of at least $5,500 a year.

What the Stafford Program Offers

The Stafford program offers both subsidized and unsubsidized loans. If you are considering a Stafford loan, it is vital to understand the difference between the two. Like I always say, READ THE FINE PRINT. All undergraduate students, no matter their financial status, are eligible for an unsubsidized loan from the Stafford program. These loans begin to mount interest, which you have to pay back, right away upon your enrollment in an institution of higher learning. Subsidized loans, on the other hand, are reserved for students who, through their FAFSA status, demonstrate a high level of financial need. As opposed to unsubsidized loans, students are not required to pay the interest accrued on a subsidized loan while they are in school.

About six months after a student departs college for good, whether you graduate or leave for other reasons, your first Stafford loan bill will arrive in the mail. The Stafford program has a variety of repayment options available, since each student’s situation is different. All in all, due to their fixed interest rates, open eligibility, and federal funding, Stafford loans are generally seen as a financially prudent alternative to expensive private loans.

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