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An Introduction To The Basics Of The Stafford Student Loan

By Don Saunders

In 1965 Congress created the Federal Family Education Loan Program (FFELP) in order to provide financial aid to students. One element of this loans program is Stafford loans which were originally intended only to help those students in real financial need but which now comprise more than ninety percent of all Federal student loans.

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

In the case of subsidized loans the Federal Government assumes responsibility for the payment of any interest that accrues on a loan from the date on which the loan is issued until the student has to start repaying the loan. Generally a student will not have to make repayments while he is enrolled on a program of study that is considered to be a 'half-time' or greater program and for a period of six months after the conclusion of his course. A student can however begin to make payments sooner if he wants to do so.

Because interest is subsidized, these loans are usually granted only on the basis of need and officials will take into account both a student's and his family's income when deciding whether or not a student qualifies for a subsidized Stafford loan. Students are required to complete a Free Application for Federal Student Aid application that includes income details and the student will then be assigned a number known as the Expected Family Contribution (EFC) calculated from the declared income.

Around two-thirds of subsidized Stafford loans are allocated to students with parents who have an Adjusted Gross Income of less than $50,000 per year. A further one-quarter are awarded to families in the $50-100,000 per year range. After this the meaning of 'need' becomes somewhat fuzzy and slightly under one-tenth of loans are given to students with a combined family income of over $100,000.

In the case of those students who do not qualify for a subsidized loan most will qualify for an unsubsidized Stafford loan. The major difference here is that students must meet the interest payments on the loan, although again payment will not usually start until six months after the end of the student's program of study.

An unsubsidized Stafford loan can be reasonably costly as interest builds during the period of study and so the capital sum for eventual repayment will also grow. Let us consider a very simplified example.

Let us say that a student borrows $5,000 in his first year of study at an interest rate of 6.8%. After one year the interest due is $340 and this will be added to the loan capital. During the second year the student will accrue interest on $5,340 at 6.8% and this will come to approximately $363 raising the total debt after two years to $5,703. This example is not wholly accurate as interest is in fact calculated and added monthly but it does nevertheless demonstrate the principles of this form of loan.

Dependent upon the sum of money that is borrowed each year and the length of time before repayment begins we can see that students can pay a reasonably high price for the benefit of delaying the repayment of a Stafford loan.

In spite of this seemingly high cost it should be remembered that a lot of the alternative methods of meeting the cost of a college education are much more costly and that many students would simply not be able to afford to attend college without a Stafford loan. provides information on Stafford college loan money and student loans backed by the federal government.

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