Stafford Loans are loans awarded to students enrolled in higher education that help them pay for their education. These loans were named after Senator Robert Stafford of Vermont for his work in the higher education field. The Stafford Loans are unique not only because they are offered at a lower interest rate, but also because of their stricter eligibility requirements and borrowing limits.
History
The Stafford Loans were signed into U.S. law as part of the Higher Education Act of 1965, which was drawn up and proposed by President Lyndon Johnson as an attempt to "strengthen the educational resources of our colleges and universities and provide financial assistance for students in postsecondary and higher education." This Act was a big component of Johnson's "Great Society" domestic agenda, which was a movement aiming to eliminate poverty and racial injustice.
Identification
The money for Stafford Loans comes from various lenders -- banks and other companies that wish to put their money into loans for students. The top ten Stafford Loan lenders---in order---are as follows: Federal Direct Student Loan Program, Sallie Mae, JP Morgan Chase, Citibank, Bank of America, Wells Fargo, Wachovia, College Loan Corporation, U.S. Bank, and Access Group.
Function
In order to be eligible for a Stafford Loan, you must first complete the Free Application for Federal Student Aid (FAFSA). After receiving your statement from FAFSA, you have to turn in your award letter along with your application to officially apply for the loan. Once you are approved, the lender will directly pay your university in two installments: once before the fall semester, and once before the spring semester. This loan money is used to pay both tuition and other assorted fees -- if there is money left over after paying these expenses, it is either paid directly to you or credited to your account, depending on your school's policy.
Considerations
The amount of money awarded varies from student to student, but the loan limits are as follows: for dependent students - $5,500 ($3,500 subsidized/$2,000 unsubsidized) for the first year, $6,500 ($4,500 subsidized/$2,000 unsubsidized) for the second year, and $7,500 ($5,500 subsidized/$2,000 unsubsidized) for the third year and beyond; for independent students - $9,500 ($3,500 subsidized/$6,000 unsubsidized) for the first year, $10,500 ($4,500 subsidized/$6,000 unsubsidized) for the second year, $12,500 ($5,500 subsidized/$7,000 unsubsidized) for the rest of the student's undergraduate career, and $20,500 ($8,500 subsidized/$12,000 unsubsidized) for graduate or professional school.
Time Frame
Unlike most other loans, where payment begins one year after the payout, Stafford Loans do not require payback to begin until six months after a student graduates, drops below full-time student status, or withdraws -- this is called the "Grace Period." Additionally, Stafford Loans are offered as either subsidized or unsubsidized loans. The former are distributed to students based on financial need and have all interest paid by the government until the end of the grace period. However, with the unsubsidized kind, students are responsible for paying all the interest that accrues during their enrollment at school.
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