The Federal Stafford Loan is unique in that it comes in two flavors: one (Direct Subsidized Loan) is specific to the financially needy and the other (Direct Unsubsidized Loan) can be taken out by anybody attending a school of higher learning regardless of financial need. The loan is funded directly by the U.S. Department of Education and can be used to pay for college, university, trade/technical school or career training.
Differences between Subsidized and Unsubsidized Loans
The first major difference is the interest rate. Direct Subsidized Loans have lower interest rates since they cater to those with financial need. Unsubsidized Loan rates are synced closer to private loan interest rates.
Another difference? Interest accrual. Subsidized loans don’t accrue interest while the student is still in school. Unsubsidized loans being accruing interest the moment they are originated. If the student doesn’t pay this interest while in school, it is added to the principal upon leaving school.
How much can I borrow?
Undergrad students filing taxes independently can borrow a total amount of $23,000 subsidized and $34,500 unsubsidized for a total of $57,500. Undergrad students filing dependent can receive $23,000 subsidized and $8,000 unsubsidized, for a total of $31,000. Graduate students can borrow more to cover their additional years in school.
How do I apply for a Stafford Loan?
The process is simple. By submitting the Free Application for Federal Student Aid (FAFSA) you’ll be automatically considered for the Stafford Loan. If you qualify and opt to take the loan, the funds will be distributed through your school’s financial aid department. Side note: you’ll need to sign a Master Promissory Note – which promises loan repayment – as part of receiving the loan.