Federal Government Stafford Student Loans

An Introduction To The Principles Of The Federal Government Stafford Student Loans Scheme
by Donald Saunders

More than forty years ago now back in 1965 Congress set up the Federal Family Education Loan Program to give financial aid to students. One element of this program is Stafford loans which were originally designed only to help those students in very real financial need but which today make up in excess of 90% of all Federal student loans.



Over the years Stafford loans have altered to take account of changing conditions and today there are two forms of the loan - subsidized and unsubsidized Stafford loans.



In the case of subsidized loans the Federal Government takes responsibility for the payment of any interest which accrues on a loan from the date on which the loan is issued until the student is required to start making repayments. Usually a student does not have to make repayments while he is enrolled in a program of study which is classed as being a 'half-time' or greater course of study and for a period of up to six months after the end of his course. However, a student can start making payments earlier if he so chooses.



Since the interest on the loan is being subsidized, these loans are generally granted only on the basis of need and aid officials will consider both a student's and his family's income when determining whether a student qualifies for a subsidized Stafford loan. Students are required to complete a Free Application for Federal Student Aid application form which includes details of income and each student will then be assigned a number referred to as the Expected Family Contribution (EFC) calculated from the income figures provided.



Around two-thirds of subsidized Stafford loans are granted to students with parents who have an Adjusted Gross Income of under $50,000 a year. A further one-quarter are granted to those in the $50-100,000 a year range. At this point however the meaning of 'need' becomes a bit blurred and slightly under one-tenth of loans are provided to students whose combined family income is over $100,000.



For those students who do not meet the requirements for a subsidized loan most will qualify for an unsubsidized Stafford loan. The major difference here is that the student have got to meet all interest payments on the loan, though once again payment do not usually start until six months after the end of the student's course of study.



The mechanics of an unsubsidized Stafford loan means that a loan can be reasonably costly because the interest accumulates over the period of study and so the capital sum on which repayment will eventually need to be made will also increase. Let us take an extremely simplified example.



Let us assume that a student borrows the sum of $5,000 in his first year at an interest rate of 6.8%. After one year the interest due is $340 which will be added to the loan capital. During the next year the student will then accrue interest on the new capital sum of $5,340 at 6.8% which will come to roughly $363 increasing the total borrowed at the end of the second year to $5,703. Naturally this example is not completely accurate because interest is in fact calculated and added monthly but it does nonetheless demonstrate the principles of this form of loan.



Dependent upon the amount of money which is borrowed every year and the time before repayment begins you can see that a student can pay a quite high price for delaying the repayment of a Stafford loan.



In spite of the apparently high cost it ought to be remembered that many of the alternative methods of meeting the cost of a college education are considerably more costly and that many students could simply not afford to attend college without a Stafford loan.


TheStudentLoansCenter.com provides information on the Stafford college loan and student loans backed by the federal government


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