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Stafford Loan
Deciding to Apply
Applying for a Stafford Loan
Repaying a Stafford Loan
What type of loan is a Stafford Loan?
Stafford loans are the most popular federal loans available to help students
pay for college. They are the first source of aid for many students who meet
federal eligibility requirements, and are backed by the government. These loans
have low interest rates and do not require credit checks or collateral. They
also provide a variety of deferment options and extended repayment terms for
borrowers who need more time to repay their loans. The high maximum loan limits
for Stafford loans allow students to borrow substantial amounts at low rates in
order to pay for school. They are available to both undergraduate and graduate
students and can be used to cover eligible expenses such as tuition and fees,
room and board, books and supplies and a living allowance.
What is the difference between a Subsidized and an Unsubsidized Stafford?
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Subsidized
- Subsidized Stafford loans are for students who show a demonstrated need for
financial aid. It's called a "subsidized" Stafford loan because when a student
borrows one, she is not charged any interest while still in school or during
authorized periods of deferment. The federal government "subsidizes" the
interest during these periods.
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Unsubsidized
- An unsubsidized Stafford Loan is a non need-based loan on which interest is
paid by the borrower and not the federal government. Interest on these loans is
usually capitalized - that is, the interest that accrues while the student is
in school will be added to the principal amount of the loan and additional
interest will accrue on the new loan principal. Students have the option of
making interest payments while still in school or allowing the interest to
accrue and capitalize and making payments after leaving school.
What are the eligibility requirements?
To determine whether you are eligible for Stafford loans, you must fill out a
Free Application for Federal Student Aid, or FAFSA. The FAFSA is available
through your financial aid office or on the web at
www.fafsa.ed.gov. You must also meet the following criteria:
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Be enrolled at least 1/2 time in an eligible degree or certificate program
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Be a U.S. Citizen or Permanent Resident
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Not be in default on any existing student loan
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Have a high school diploma or equivalency
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Make satisfactory academic progress
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Have not already borrowed up to the limits of the program
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Have satisfied all Selective
Service Act requirements
How much can I borrow?
Your maximum borrowing amount depends on a couple of different factors, such as
whether you are a dependent student (check below if you are unsure whether you
qualify as independent or dependent), whether your parents qualify for a PLUS
loan and whether you are an undergraduate or a graduate student.
The following table provides guidelines for maximum borrowing
amounts for Stafford loans:
| DEPENDENT UNDERGRADUATES |
SUBSIDIZED |
TOTAL*
(Subsidized & Unsubsidized) |
| First Year |
$3,500 |
$3,500 |
| Second Year |
$4,500 |
$4,500 |
| Third Year and Beyond |
$5,500 |
$5,500 |
INDEPENDENT UNDERGRADUATES
(and dependents whose parents are unable to borrow under the PLUS program)
|
|
| First Year |
$3,500 |
$7,500 |
| Second Year
|
$4,500 |
$8,500
|
| Third Year and Beyond |
$5,500
|
$10,500 |
| GRADUATE AND PROFESSIONAL STUDENTS |
$8,500 |
$18,500 |
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AGGREGATE LIMITS
|
| DEPENDENT UNDERGRADUATES |
$23,000 |
$23,000 |
| INDEPENDENT UNDERGRADUATES
(and dependents whose parents are unable to borrow under the PLUS program) |
$23,000 |
$46,000 |
| GRADUATE AND PROFESSIONAL STUDENTS
|
$65,500 |
$138,500
|
Note:
Graduate students in Medicine, Dentistry, and Veterinarian Science (and several
other health professionals) can borrow up to $189,125.
* Total includes all higher education debt.
What fees should I know about?
All Stafford loans have a federal loan origination fee of 1.5% that is charged
by the federal government. There is also a federal default fee of up to 1% of the
total loan amount. These fees will be charged when the loan is disbursed and
deducted evenly from each disbursement of your loan.
What's the difference between an independent and dependent student?
A student is considered independent if he or she meets one or more of the
following criteria:
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At least 24 years old by December 31 of award year
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Orphan or ward of the court until he or she reached 18
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Veteran of the U.S. Armed Forces
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Student is a graduate or professional student (regardless of whether student is
claimed as an income tax exemption by his or her parents)
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Student is married
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Student has legal dependents other than a spouse
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Other special circumstances documented by financial aid administrator (these
are very rare - contact your financial aid administrator for details)
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A dependent undergraduate student whose parents are unable to borrow under the
PLUS loan program
Is a co-borrower required for a Stafford loan?
A co-borrower is not required for a Stafford loan. The student who borrows the
loan is fully responsible for repaying the loan in full.
How much interest will I pay on a Stafford loan?
All Stafford loans originated after July 1, 2006 will carry a fixed interest
rate of 6.80% during their in-school, grace and repayment
periods. The 6.80% rate is fixed for the life of the loan.
How do I get the money from a Federal Stafford Loan?
Your financial aid office disburses Stafford Loan funds to you in scheduled
payments over the course of the academic year. If you take out a Stafford loan
through Chela, we will fund your loan through your school's financial aid
office. Funds usually become available early on in the school term, depending
on factors such as when your application was completed. Some schools will
deposit these funds directly into your bank account while others may mail them
to you or ask you to retrieve a check.
The loan funds will be sent to you in most cases in at least two
installments. No installment will be greater than half the amount of your loan.
Your loan money must first be used to pay for your tuition, fees and room and
board. If loan money remains, you'll receive the remaining amount through your
financial aid office.
Can I use the money for items other than tuition?
Your loan money must first be applied to pay for tuition and fees, room and
board and other school charges. If loan money remains after these payments are
made, you'll receive the funds by check or in cash. Some schools, if you ask
them to, will hold the funds for you so that you can use them to pay for costs
later in your enrollment period.
Are there any tax breaks with a Stafford Loan?
Students who are repaying their federal loans - including the Stafford loan -
can deduct interest payments from their income taxes. This is the primary tax
break offered to students. Most tax breaks are limited by income. Read on for
more information:
Student Loan Interest Deduction:
Once you leave school and begin making payments on your loans you may be able
to deduct up to $2,500 per year for interest paid on qualified student loans
like a Stafford or Perkins loan. As of 2002 you can now deduct interest
payments for the life your loan. There are some income limitations on this
deduction - if your income is greater than a certain amount, you won't be able
to claim the full deduction. Talk to your tax advisor or visit the
IRS website for details.
Lifetime Learning Credit:
Families with family members in college may be able to claim a Lifetime
Learning tax credit of up to $2,000 to offset the cost of college or of other
forms of higher education. The Lifetime Learning credit is available to offset
tuition and other education costs for all students enrolled in eligible
institutions. For more information on eligibility for the credit, including
income limitations, talk to your tax advisor or visit the
IRS website for details.
How much will my monthly payments be?
Your monthly payment will depend on many factors, including the type of loans
you took out, your total outstanding balance and the interest rate on your
loans. Stafford student loan payments must be at least $50 a month per loan.
Click here to use the Chela repayment calculator to estimate your
monthly payments.
How do I apply?
You must first fill out a Free Application for Federal Student Aid (FAFSA) to
apply for a Stafford loan. You can get a FAFSA form from your school's
financial aid office, or online at http://www.fafsa.ed.gov/.
Some schools also provide their own separate financial aid application
documents in addition to the FAFSA, so be sure to check with your school's aid
office. After your applications are processed, your school will review the
results and will inform you about your loan eligibility. Your school may ask
you to verify that you want the loan and then may ask you to select an
education finance provider. You will also have to complete and sign a
promissory note indicating your intention to repay the loan in full. Make sure
you have read and fully understand the terms of your loan, and if it all looks
good, sign and submit your application.
You can
apply online with Chela Education Financing using our fast, easy,
paperless e-Sign process
. You will also have the option to complete your Stafford Application online,
print, and mail it to us, should you prefer this method.
What information do I need before I start my Stafford loan application?
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Your Social Security Number (SSN)
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Your Driver License/State ID Number and State of Issuance
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Permanent address
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Your Alien Registration Receipt Card (if applicable)
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Names and contact information for at least two references that must have
separate U.S. addresses.
Important: In order to utilize the e-Sign option you will also need
to have your 4-digit FAFSA PIN given to you by the Department
of Education.
What is e-Sign?
Electronic Signature (e-Sign) is the fastest method available for completing
your Federal Stafford Loan Application and Master Promissory Note (MPN). It
makes the process paperless. You will need your 4-digit FAFSA PIN
to complete the e-Sign process. Even if you choose not to use the e-Sign
process you can still complete your Stafford Application online, print and mail
it to Chela directly. Let's
get started!
How do I get a FAFSA PIN?
Your 4-digit FAFSA PIN would have been sent to you by email or U.S. mail upon
your request or if you completed your FREE Application for Student Aid (FAFSA)
online. If you do not currently have a PIN you can obtain one at the FAFSA
website (http://www.pin.ed.gov/).
Please be aware it can take anywhere from 3 to 10 days for your PIN to arrive.
Already have your PIN?
Apply online today!
What happens if I choose to capitalize the interest on a Stafford loan?
If you choose not to pay the interest while in school on an unsubsidized
Stafford loan, the interest on the loan will be capitalized. This means that
interest will accrue on the loan, and that interest will be added to the
original balance of the loan.
This chart provides an example of the difference in monthly
payments and total amount paid based on an unsubsidized Stafford Loan where
interest is paid during school and a loan where the interest is capitalized.
| Treatment of Interest |
Loan Amt |
Capitalized Int. for 12 Months |
Principal to be Repaid |
Monthly Payment |
# of Payments |
Total Amt. Repaid |
| When you pay the interest |
$15,000 |
$0 |
$15,000 |
$184 |
120 |
$22,077 |
| When you don't pay the interest |
$15,000 |
$1,350 |
$16,350 |
$201 |
120 |
$24,069 |
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Result: During repayment, you pay $17 less per month and $1,987 less over the life of your loan(s) |
TIP:
If you qualify, a subsidized Stafford Loan is definitely preferable, as the
federal government will pay the interest on the loan while you are in school or
in deferment.
What is a Master Promissory Note (MPN)?
The MPN is the common application for a Stafford loan. It is a contract between
you and your education finance provider. A signed MPN is required before a
Stafford loan can be processed.
As of July 1, 2000, all borrowers of Federal Stafford Loans must
use the new Master Promissory Note (MPN), which replaces the previous Federal
Stafford Loan Application Promissory Note (common application). The MPN is
different from the old promissory note in several ways.
Multi-year Feature
The MPN has a multi-year feature that allows students at eligible schools to
complete the note one time, and then take out new student loans each year
during enrollment without filling out some additional paperwork. The Free
Application for Federal Student Aid (FAFSA) now serves as your loan application
when you complete it each year. Some schools will require confirmation before
disbursing loans.
With the multi-year feature, a freshman student can complete an MPN
at a four-year college and receive a Stafford Loan each year without signing a
new Promissory note. That student can go on to graduate school and continue to
borrow with the same education finance provider using the MPN signed as a
freshman. (You still have to renew a FAFSA every year, though.)
Note: Some schools may not be authorized to use the multi-year
feature of the MPN. For those schools, you would have to complete a new MPN for
each loan. You will have to complete a new MPN if you change education finance
providers.
Commitment to Repay
The MPN is a legally binding document that sets the terms of your loans. Keep
in mind: when you sign the MPN, you are promising to repay your student loans
regardless of whether you graduate, drop out of school, are unsatisfied with
your education, or can't find a job.
Expiration
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If you do not take out a loan and no disbursements are made, the MPN will
expire 12 months after you signed the note.
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If you do take out a loan and receive disbursements, the MPN expires ten years
from the date it was signed.
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You may revoke your MPN at any time by sending a written notice to the lender.
You will still have to repay any loans disbursed on the MPN before it was
revoked
What do I need to send in to complete my loan application?
Once you send in a completed FAFSA application and your eligibility for a
Stafford loan package is determined, your lender or loan servicer will send you
loan application documents, usually through your financial aid office. Once you
complete the application, sign it and send it in, or e-Sign using our e-Sign
process if your school participates. First time borrowers at a school will need
to complete an entrance counseling session and, sometimes, additional debt
management counseling before loan funds will be released. Your financial aid
office will give you more details.
Can I have payments deducted automatically from my bank account?
Yes. Once you begin repayment, contact your loan servicer and ask to be signed
up for automatic withdrawal, if it is available (Chela and Nelnet offer
automatic withdrawal). Most servicers encourage this practice. In fact, if you
choose Chela and Nelnet as your Stafford loan education finance provider you
will receive an additional two waived payments when you sign up for automatic
withdrawal of loan payments from your bank account. Not only will you never
miss a loan payment, but you'll also end up paying less money over the life of
your loan.
Do I have to make payments on my Stafford loan while I'm in school?
You do not have to make payments on your Stafford loans while enrolled in
school at least half-time. However, you might want to consider making payments
on your unsubsidized Stafford loans while still in school if you can afford to
do so. The federal government pays the interest on your subsidized Stafford
loans while you're in school, but interest accrues on your unsubsidized loans.
If you can pay the interest while still enrolled, it would save you money in
the long run.
When is my first payment due?
Repayment begins 6 months after you graduate, leave school, or drop below
half-time enrollment.
What are my repayment options?
You may select from the following four repayment options:
Standard Payment Plan
- Sets equal monthly payments throughout your repayment term, each covering the
principal and interest due that month. Your final payment may be slightly more
or less than your other payments. Of all the options available, this plan is
most likely to result in the lowest aggregated interest costs over the life of
your loan.
Graduated Payment Plan
- Reduces the amount of your monthly payments during the first years of
repayment. If you select this option, during the first 2 years your monthly
payments will be interest-only payments or higher depending on your loan
balance. After the first 2 years of reduced payments you may have the option to
renew the graduated payment plan for an additional 2 years. Although your
initial monthly payments are reduced, the aggregated interest repaid over the
life of your loan and your later monthly payments will increase. This plan will
not extend your repayment term. Minimum loan amounts and other eligibility
restrictions may apply.
Income-Sensitive Payment Plan
- This repayment option allows you to pay between 4-25% of your gross monthly
income (not to drop below the monthly accrued interest on your loan(s)). The
income-sensitive payment is offered for a year at a time, up to a total of five
years over the life of your loan. The remaining terms follow a standard payment
plan. Eligibility and income documentation (i.e. pay stubs for the past 2
months) must be verified annually. Additional documentation may be required.
Extended Payment Plan
- If you received your first Stafford Loan, Supplemental Loan for Students
(SLS), or PLUS Loan on or after October 7, 1998 and the outstanding balance of
these loans totals more than $30,000, you can opt to repay your loan over a
25-year term instead of a 10-year term.
What happens if I don't repay my Stafford student loan?
When you sign a promissory note, you're agreeing to repay the loan according to
the terms of the note. The note is a binding legal document and states that you
must repay the loan - even if you don't complete your education, aren't able to
get a job after you complete the program, or are dissatisfied with, or don't
receive, the education you paid for. (One exception: if you're unable to
complete your education because your school shuts down, you may not be
responsible for your full loan amount.) Think about what this obligation means
before you take out a loan. If you consistently fail to repay your loan on time
or according to the terms in your promissory note, you may go into default,
which has very serious consequences. Your debt will likely be turned over to a
collection agency, which could take you to court, and in the meantime, your
credit rating will likely be ruined.
Are there any pre-payment penalties?
No, there are no pre-payment penalties on your student loans. If you want to
pay off your loans before your final payment is due, you're encouraged to do
so.
How long will it take me to pay back a Stafford loan?
Under the standard repayment option, it will take you ten years to repay your
loan. This period may be extended if you choose alternative repayment plans or
ever go into deferment or forbearance on your loan. Of course, you can always
pay back your loans sooner if you'd like, at no penalty.
Do I have to start repaying as soon as I leave school?
Stafford loans have a six-month grace period once you graduate or drop below
half-time status. Be aware of when your first payment is due so that you do not
lose your on-time repayment interest rate discounts.
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