20 May Quick Guide to Stafford Loans
Paying for college can sometimes feel downright impossible, but you should know that there are many resources you can take advantage of to get the money you need to finance your education. One of those options is Stafford loans, which have long been popular among college students. Here, in our quick guide to Stafford loans, we’ll explain what these loans are, how they work, and everything you need to know to determine if Stafford loans are the right fit for you.
What are Stafford Loans?
The first question you probably have, of course, is what, exactly are Stafford loans. These are federal loans specifically designed for educational purposes. There are two types of Stafford loans: subsidized loans and unsubsidized loans.
Subsidized Stafford loans are given to part-time or full-time students. As long as the student is enrolled in a degree program, interest will not accrue on the loan. It will also not accrue for a period of six months following the student leaving or completing the degree program. After six months, however, the student must begin repaying the principal and interest. However, the borrower may stop making payments if he or she returns to school.
Unsubsidized Stafford loans are also available to both part-time and full-time students. Unlike with subsidized loans, however, interest does accrue on the loan while the student is in school and may be added to the principal of the loan. The student will need to begin paying back the loan six months after leaving school, dropping below half-time, or completing the program. Again, though, payments are not required if the student returns to school.
Both subsidized and unsubsidized Stafford loans are available to undergraduate and graduate students.
What is the Interest Rate for Stafford Loans?
Now that you understand what Stafford loans are and how they work, you may be curious about the interest rate on these loans. Currently, the interest rate is 5.84%. This interest rate is good for any loans disbursed after July 1, 2015 and before July 1, 2016. Interest charges will begin accruing from the day the loan is first disbursed until the day the loan is paid off.
Am I Eligible and How Much Can I Borrow?
The vast majority of today’s college students will be eligible for some degree of Stafford loan financing. Undergraduates can typically qualify for around $5,500 per year or more, providing they have not defaulted on any other federal student loans, are legal residents, and will be attending college at least part-time.
Students who are still financially dependent on their parents cannot borrow more than $5,500 in their first year of college. However, this amount increases by a thousand dollars the second year, and by another thousand for the third and fourth year, as well as any subsequent years.
Other Requirements: The Master Promissory Note
Now that all of the basic and most common questions about Stafford loans have been answered, there are a few other things you should know. One of them is that, prior to receiving loan funds, students must sign what is referred to as a Master Promissory Note (MPN).
This note serves as a legal and legally binding agreement to pay back the loan. The note will include all terms and conditions of the loan, the repayment schedule, the deferment policy, the interest rate, and more.
Lenders will send out MPNs for written or electronic signatures, and once signed, the MPN is valid for ten years, providing the borrower does not change lenders. If the borrower does change lenders, a new MPN will need to be signed.
Don’t Forget Deadlines
While you can apply for Stafford loans at any time of the year, you most likely are applying for a loan because you plan to begin school at a certain time. As such, be mindful of the deadlines that exist for getting in your application materials for the semester that you plan to attend school and for which you will need your loan funds.
If you plan to attend school in the fall semester, you must apply by June 15. If you plan to attend it in the spring semester, you must apply by November 15, and if you plan to attend summer semester, you must apply by April 30. These dates may vary somewhat from one institution to the next, but, in general, you must have your materials in on these dates in order to ensure that you will get your financial aid funds when you need them.
Paying Back Stafford Loans
When a borrower leaves or completes school, he or she may have a hard time finding a job right away or may run into other financial trouble. When that happens, it can be very difficult to make Stafford loan payments.
However, falling behind on federal loan payments is very serious. It can lead to wage garnishment, frozen bank accounts, and a host of other serious problems. For this reason, borrowers should do everything within their power to try and make their Stafford loan payments.
Even if they have to take out other loans to make the payments, this often isn’t a bad idea. Title loans, for example, can be an easy way to get cash quickly; the cash can then be used to pay on Stafford loans and to avoid increasing interest and other potential consequences.
Borrowers can also contact their state Department of Education to learn about other options they may have for paying back their loan or reducing their payments.
Obviously, there is a lot to know about Stafford loans. These loans, while they can get costly, have helped many people to go to school and to achieve their educational goals. Whether or not they are right for you, however, will depend on a variety of factors, and only you can decide if a Stafford loan is your perfect fit. If you do apply for a Stafford loan, however, make sure you educate yourself as much as possible so that you won’t run into any unwanted surprises along the way.