Subsidized and Unsubsidized Stafford Student Loan

To offer financial aid to student, in 1965, Congress established Stafford loan as part of FFELP (Federal Family Education Loan Program). Though Stafford loan programs were initially originated to cover those who were in real need of a student loan, later it got so popular. Today, about $50 billion loan amount is disbursed every year through various FFELP categories, out of which about 90% is towards Stafford loan program. Eventually the need for student loan through Stafford broadened to 2 types namely subsidized and unsubsidized.

Subsidized Stafford loans are most preferred since the government pays any accrued interest from disbursal till the beginning of payments. Usually the payment starts only after six months of leaving the school and students do not have to pay while in school half time or more. However, if the students prefer, they may request for payments to start earlier.

Subsidized loans are need based, hence the economic status of the family will be checked in, to qualify for the loan. Documents substantiating low income should be provided while applying through FAFSA (Free Application for Federal Student Aid) application which is available at http://www.fafsa.ed.gov/. An EFC (Expected Family Contribution is evaluated by the loan officers to determine the eligibility of the applicant.

The subsidized Stafford loans are offered to students based on their income. About two thirds of the entire loan is provided to students from a family where the annual adjusted gross income is under $50,000. Another 25% is provided to those between $50,000 to $100,000 incomes per annum. And only up to 10% of the loan is awarded to students whose family income is over $100,000 since the word ‘needy’ can be made flexible. However the students who do not qualify for subsidized Stafford loans are mostly eligible to be granted an unsubsidized Stafford loan.

In the case of unsubsidized loan, unlike the subsidized ones, the interest accumulates from the time of disbursal until the amount the entirely paid off. For instance for a loan amount of $4000, with an interest rate of 6.8% the interest amount would accumulate up to $250 during the first year. If the payment is not made during the first year, it adds up to the principle and interest is charged to the entire sum.

These amounts are just indicative since the interest amount is evaluated monthly and not yearly. To derive at more appropriate figures, sample scenarios can be used with a loan calculator at http://www.bankrate.com/brm/mortgage-calculator.asp.

The amount shown in the example, $4000 is too low considering the practical situations. On an average the undergraduate students may have to borrow up to $15,000 annually to meet the educational cost from a combination of subsidized and unsubsidized Stafford loans and other private loans.

More information and breakups using sample scenarios are available at http://studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp or http://www.salliemae.com/get_student_loan/find_student_loan/undergrad_student_loan/federal_student_loans/stafford_loans/ Since the fees are deducted from the loan amount, the actual disbursal amount will be lower than stated.