Stafford Loans: Borrowing for College

It’s that time of year when parents, as well as new and returning college students, start thinking about college loans.

Consequently, today I want to answer a few questions about Stafford Loans, which are the most popular federal student loans.

Here are the questions:

Question No. 1: Are there different kinds of Stafford Loans?

 

Yes. There are unsubsidized Stafford Loans and subsidized Stafford Loans.

The best loan to get is the subsidized Stafford. The student loan interest rate on subsidized Stafford is lower. Beginning July 1, the interest rate will be 3.4%, which is a phenomenal deal. In comparison, the student loan interest rate on an unsubsidized Stafford is 6.8%.

Here’s the other important difference: Students who qualify for a subsidized Stafford Loan don’t have to pay the interest that accrues while the student is in college. The federal government pays for all this interest. Borrowers through the other Stafford don’t get this cushy deal.

Question No. 2: How do you know if you qualify for a subsidized Stafford or an unsubsidized Stafford loan?

Your college will tell you. Look on the financial aid package that your college sends you. In the package you should see what the breakdown of subsidized versus unsubsidized Stafford loans are. The majority of subsidized Stafford Loans are awarded to students whose family’s adjusted gross income is less than $50,000.

A federal formula is used to determine if a student, based on a family’s finances, is eligible for the better subsidized deal. You may see both kinds of Stafford Loans in your package.

Question No. 3: When should I apply for my federal student loan?

You can ask your college’s financial aid office, but the new year for federal student loans start July 1.

Question No. 4: What happens if I need to borrow more than the Stafford loan program allows?

Federal student loans are the superior loans — by far — for students who need to borrow, but there are limits to how much you can borrow. I’ll be covering other student and parent loan options soon.

Lynn O’Shaughnessy is the author of The College Solution and she also writes a college blog for CBSMoneyWatch.com. Follow her on Twitter.

Student loan image by photosteve101. CC 2.0.

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