Direct Stafford Loans are student loans originated by the United States Department of Education to both undergraduate and graduate students.
Stafford loans come in two types:
- Subsidized Stafford loan
- Unsubsidized Stafford loan.
Subsidized Stafford Loans:
Direct Subsidized Stafford Loans are more favorable than unsubsidized Stafford loans because the government kicks in to pay the interest during applicable periods. Stafford loans have loan limits and subsidized loans have lower lending limits than do unsubsidized Stafford loans.
Direct Subsidized Stafford Loans are only available to undergraduate students with a “demonstrated financial need”. The school determines the amount a student can borrow which may not exceed the student’s financial need.
The U.S. Department of Education pays the interest on a Direct Subsidized Loan while:
- The student is in school at least half-time (six credit hours per semester or more);
- The first six months after the student leaves school (referred to as a grace period), and
- During a period of deferment (a postponement of loan payments).
Unsubsidized Stafford Loans:
Unsubsidized Stafford Loans are available to undergraduate and graduate students with no requirement to demonstrate financial need. The school determines the amount the student can borrow based on the “cost of attendance” and other financial aid received.
The borrower is responsible for paying the interest on all Unsubsidized Loans during all periods.
If a borrower does not to pay the interest while in school and during grace periods and deferment or forbearance periods, the interest will accrue, accumulate and be capitalized adding it to the principal of the loan.
Stafford Loan Lending Limits
Stafford loans have the following lending limits which vary depending on whether the borrower is a dependent (tied to a parent) or independent:
| YEAR OF SCHOOL | DEPENANT | INDEPENDENT |
| First-Year Undergrad Annual Loan Limit | $5,500—No more than $3,500 of this amount may be in subsidized loans. | $9,500—No more than $3,500 of this amount may be in subsidized loans. |
| Second-Year Undergrad Annual Loan Limit | $6,500—No more than $4,500 of this amount may be in subsidized loans. | $10,500—No more than $4,500 of this amount may be in subsidized loans. |
| Third-Year and Beyond Undergraduate Annual Loan Limit | $7,500—No more than $5,500 of this amount may be in subsidized loans. | $12,500—No more than $5,500 of this amount may be in subsidized loans. |
| Graduate or Professional Students Annual Loan Limit | N/A (all graduate and professional students are considered independent) | $20,500 (unsubsidized only) |
| Subsidized and Unsubsidized Aggregate Loan Limit | $31,000—No more than $23,000 of this amount may be in subsidized loans. | $57,500 for undergraduates—No more than $23,000 of this amount may be in subsidized loans. $138,500 for graduate or professional students—No more than $65,500 of this amount may be in subsidized loans. The graduate aggregate limit includes all federal loans received for undergraduate study. |
While Stafford Loans are in good standing (not in default), they are serviced by a federal loan servicer. If in default, federal Stafford loans are transferred to a collection agency for collection.