Stafford loans, also known as William D. Ford Federal Direct Loans, are by far the most common type of student loans with 32.8 million recipients borrowing a total of $705.3 billion in 2017.
These loans are backed by the U.S. government, so if a student defaults, the government guarantees repayment to the lender. That is the reason Stafford loans offer lower rates than private loans.
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There are two types of Stafford loans — subsidized and unsubsidized — and each type has different financial-need requirements and benefits.
Subsidized Stafford loans are the most desirable student loans because the government pays the interest on your loan while you’re in school, during the six-month grace period after school and during a period of deferment if you are having financial trouble after graduation.
Unsubsidized Stafford loans accrue interest while in school, during grace periods and deferment periods. Students are not required to pay the accumulating interest during these periods, but if you choose not to pay, it will be added to the principle amount of your loan.
There are dollar-amount limits on Stafford loans based on what year of school you’re in; whether your Stafford loans are subsidized or unsubsidized and whether you are financially dependent on your parents. Subsidized Stafford Loans have stricter limits than unsubsidized. For example, a first-year dependent student can take out a total of $5,500 in Stafford loans. Subsidized loans can make up a maximum of $3,500 of this total.
This means if you have the maximum $3,500 in a subsidized loan, you can borrow another $2,000 in an unsubsidized loan that year. If you receive a subsidized loan of only $1,000, this leaves $4,500 that you can borrow in the form of an unsubsidized loan.
If you are financially dependent and your parents were denied a Parent PLUS loan, you are eligible for the same loan limits as an independent student.
| Year | Subsidized Loan Limit | Annual Limit for Dependent Students | Annual Limit for Independent Students |
|---|---|---|---|
| Preparatory Coursework for an Undergraduate Program | $2,625 | $2,625 | $8,625 |
| First Year | $3,500 | $5,500 | $9,500 |
| Second Year | $4,500 | $6,500 | $10,500 |
| Third Year and Beyond | $5,500 | $7,500 | $12,500 |
| Preparatory Coursework for a Graduate Program | $5,500 | $5,500 | $12,500 |
| Teacher Certification Coursework | $5,500 | $5,500 | $12,500 |
| Total Undergraduate Limit | $23,000 | $31,000 | $57,500 |
| Year | Subsidized Loan Limit | Total Annual Limit |
|---|---|---|
| Graduate and Professional Students | $8,500 | $20,500 |
| Medical School Students | $8,500 | $40,500 |
| Total Graduate School Limit | $65,500 | $138,500 |
| Total Medical School Limit | $65,500 | $224,000 |
*Effective July 1, 2012 Graduate and Professional students are no longer eligible for Subsidized Stafford loans
**The total aggregate limit includes all federal loans received for undergraduate study
Apply for a Stafford loan by completing a Free Application for Federal Student Aid (FAFSA) form. This application is also used to determine if you’ll receive a Perkins loan, another type of federal student loan.
If you are not eligible for any federal student aid, look into private education loans to finance your education. No matter what your financial situation or credit history, you should be able to find a loan to help you pay for your own or your child’s higher education.
Financial aid, including Stafford loans, is handled by your college’s financial aid office. First-time borrowers need to complete entrance counseling (informing you of your obligation to repay the loan) and sign a Master Promissory Note (agreeing to the terms and conditions).
Financial aid is disbursed in two installments, typically at the beginning of each semester. First, the school will apply the funds to your school account balance. This covers tuition, fees, room and board and any other school charges. The remaining money is returned to you either by check or direct deposit. You probably won’t see any money until a few weeks after the semester starts, so don’t count on loans to pay for books and school supplies right away.