What is a Stafford Loan?

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By Mark Kantrowitz

April 8, 2021

The Federal Stafford Loan, also known as the Federal Direct Loan, is the largest and most popular student loan program today. 

Federal Stafford Loans are low-cost loans borrowed by students to pay for their college education.

Subsidized and Unsubsidized Loans

There are two versions of the Federal Stafford Loan, subsidized and unsubsidized

The federal government pays the interest on subsidized loans during the in-school and grace periods, as well as other deferment periods, such as during an economic hardship deferment

The federal government does not pay the interest on subsidized loans during forbearance periods, nor do they pay the interest on unsubsidized loans. 

See also: Complete Guide to Financial Aid and FAFSA

Interest Rates on Federal Stafford Loans

The interest rates on direct loans are fixed rates that change for new loans each July 1. The new interest rate is based on the last 10-year Treasury Note Auction in May. 

There are different interest rates for undergraduate and graduate students.

The interest rates are set according to this formula:

Degree Level




10-year Treasury + 2.05%



10-year Treasury + 3.60%


This table shows the most recent interest rates.

Degree Level









How Much Do Subsidized Loans Save Me?

Subsidized loans are prefered to unsubsidized loans because the government covers the interest payments while you’re still in school and during other deferment periods. This can have a significant impact on how much a student loan costs.

Depending on the amount that you borrow, you’ll typically repay your debt over the course of 10 to 25 years after you graduate.

Borrowers are responsible for paying the interest on subsidized student loans after the loans enter repayment. Borrowers are also responsible for the interest that accrues during forbearances. The federal government pays the interest during deferments but not forbearances.

With subsidized loans, interest is paid during deferments, or times when you have paused payments on your loans. This includes during an in-school deferment, as long as you are enrolled at least half-time in classes in an eligible college or career school. You can also qualify for a deferment for specific amounts of time if you are unemployed, experiencing an economic hardship, undergoing cancer treatment, completing a graduate fellowship, or are an activity duty military member.

Each of these deferments has specific requirements, and you must apply to be approved. The approval process, depending on the type of deferment, will require paperwork. For example, for an unemployment deferment, you can defer payments for up to three years if you’re actively looking for full-time work or receiving unemployment benefits.

The table below, from the U.S. Department of Education, highlights key differences between subsidized loans and unsubsidized loans.

Subsidized loans vs. Unsubsidized Federal Stafford Loans

(Image Source)

Loan Fees on Federal Stafford Loans

Loan fees are deducted from the loan disbursements. Borrowers may choose to have the loan fees added to the loan balance.

The loan fees are about 1.0%, the same for undergraduate and graduate students. Loan fees are changed each October 1, based on the federal budget. 

Fees are charged based on the disbursement date.

The most recent fees are shown in this table:


Loan Fees

October 1, 2020 – September 30, 2021


October 1, 2019 – September 30, 2020


Loan Limits on Federal Stafford Loans

The Federal Stafford Loan has annual and aggregate loan limits.

The limits on subsidized loans are lower than the overall Federal Stafford Loan limits. 

Borrowers may borrow any amounts that they do not receive as subsidized Federal Stafford Loans as unsubsidized loans, up to the overall limits.

Loan limits also differ based on the borrower’s year in school and on the student’s dependency status.

The annual loan limits for subsidized Federal Stafford Loan are the same for dependent and independent students.

Grade Level

Subsidized Stafford

Annual Loan Limits









Graduate Student


The annual loan limits for the unsubsidized Federal Stafford Loan are different for dependent and independent students.

The annual loan limits are $4,000 or $5,000 higher for independent students.

Unsubsidized Stafford

Annual Loan Limits

By Grade Level

















Graduate Student



The aggregate limits depend on degree level, dependency status, and whether the loans are subsidized or unsubsidized.

Aggregate Loan Limits

By Grade Level


Loan Limits


Loan Limits

Undergraduate (Dependent)



Undergraduate (Independent)



Graduate + Undergraduate



Eligibility for Federal Stafford Loans

Eligibility for a Federal Stafford Loan does not depend on the borrower’s credit scores, credit history, employment, or income. 

There is no credit check. There are no cosigners on Federal Stafford Loans. 

To be eligible for federal education loans, the student must be enrolled at least half-time. The student must file the Free Application for Federal Student Aid (FAFSA) and sign a Master Promissory Note (MPN) at Studentaid.gov.

Eligibility for the subsidized Federal Stafford Loan is based on financial need, while eligibility for the unsubsidized Federal Stafford Loan does not depend on financial need. Even wealthy students can qualify for unsubsidized loans. 

The student must also satisfy other general eligibility requirements for federal student aid, including citizenship status, enrollment in an eligible degree or certificate program, maintaining satisfactory academic progress, and not being in default on a federal student loan or grant overpayment.

Disbursement of Federal Stafford Loans

The funds from a Federal Stafford Loan are sent directly from the federal government to the college. 

The college financial aid office applies the loan funds to tuition and fees, plus room and board if the student is living in college housing.

Any remaining credit balance is normally “refunded” to the student within 14 days. However, federal regulations require a 30-day delay for first-time, first-year borrowers at some colleges. 

The college may also be required to split the student loan money into two disbursements. (Colleges with low cohort default rates may receive a waiver of the 30-day delay and two-disbursement requirements.)

Repayment Options

Repayment of Federal Stafford Loans begins six months after the student graduates or drops below half-time enrollment. The six month period is called a grace period.

The standard repayment term is 10 years. The borrower can choose other repayment plans, such as extended repayment, income-driven repayment, and graduated repayment.

With income-driven repayment plans, your monthly payment is based on your income and family size, which can reduce what you pay each month. After a certain amount of payments are made (generally 20 to 25 years of payments, depending on the specific plan), the remaining balance is forgiven.

Borrowers can consolidate their federal student loans into a Federal Direct Consolidation Loan. The interest rate on a Federal Direct Consolidation Loan is the weighted average of the interest rates on the loans included in the consolidation loan, rounded up to the nearest 1/8th of a percentage point.

Student Loan Forgiveness

There are several options for forgiveness of Federal Stafford Loans. These usually involve working in a particular occupation for a period of time. 

Examples include Teacher Loan Forgiveness and Public Service Loan Forgiveness.

See also: Complete Guide to Student Loan Forgiveness

There are also several options for cancellation of Federal Stafford Loans. 

These usually involve situations in which the borrower is unable to repay the debt or not responsible for the debt. Examples include a closed school discharge, death discharge, total and permanent disability discharge, identity theft discharge, bankruptcy discharge, unpaid refund discharge, and false certification discharge.

See also: Student Loan Relief from the Department of Education

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