Virtually all students enrolled at least half-time may borrow a Federal Stafford or Direct Loan. The Stafford/Direct and PLUS Loan programs are by far the largest of all the aid programs, making up over 55% of the total $90 billion annual aid portfolio. There are two different versions of the Stafford/Direct Loan: subsidized and unsubsidized.
If you borrow, you will want to try to obtain the subsidized Stafford Loan, if possible though it is based on your demonstrated financial need. A subsidized Stafford Loan means there are no payments required until six months after the student ceases to be at least a half-time student though there are no pre-payment penalties on any federal loan. The federal government pays the interest as long as the student is in school at least as a half-time student (usually six units per term for undergraduates and four units for graduate students). Interest does not accrue and payments do not begin until a six-month "grace" period transpires after the student leaves school. In order to qualify for a subsidized Stafford Loan, you must demonstrate financial need for the funds by filing the FAFSA application each year.
The federal processor then transmits the information to your college(s) where the financial aid administrators complete a review or evaluation process. Then your college's financial aid administrators will send you an award notice and Master Promissory Note (PDF) which must be completed and returned to your school or lender. In some cases, you may receive your Master Promissory Note directly from the guaranty agency used by your college. In some cases, your college financial aid administrators may request a copy of the most recent federal income tax returns for both the student and parent (if dependent). This is called the verification process. Copies of the 2005-06 Verification Worksheet for dependent students and the 2005-06 Verification Worksheet for independent students are available in PDF. PDF documents require Adobe's free Acrobat Reader.
How Much Can I Borrow?
The maximum amount that a student may borrow under the Federal subsidized Stafford Loan is based on his or her grade level. First year students may borrow a maximum of $2,625. Second year students may borrow an additional $3,500 while juniors and seniors may borrow $5,500 each year. Graduate and professional students may borrow $8,500 per year under the subsidized Stafford Loan. Because of limited grant funds, most colleges will award every student who completes the FAFSA a Stafford Loan as part of their aid package.
There is also the Federal unsubsidized Stafford Loan which is available to most every student, regardless of their income. A family can earn $300,000 a year and the student may still borrow an unsubsidized Stafford Loan as long as he or she is a U.S. citizen or eligible non-citizen, is enrolled at least half-time at a school that is eligible to participate in the Stafford Loan program, the student does not have a drug offense, is not in default on a previous federal educational loan and does not owe a repayment on a federal grant, and the student is making satisfactory academic progress as defined by his or her school.
Stafford/Direct Loan Entrance Interview Requirements
First-time freshmen borrowers must complete a loan interview before their Stafford Loan proceeds will be available at their school. This requirement is waived at a few schools participating in the U.S. Department of Education's Experimental Site/Quality Assurance program or who have a low default rate. While federal regulations do not require that other student borrowers attend a loan interview, including transfer students who may have completed a loan interview at their previous school, some college financial aid administrators require all borrowers to attend a loan interview.
The purpose of this loan interview is to insure that student borrowers have a general understanding of the terms of their loan, including interest rate, fees, maximum amount borrowed, deferment, forbearance, repayment options, etc. Loan interviews usually last between 30 - 60 minutes.
Some schools provide a video that students must view. The University of Texas, Austin offers a touch-tone telephone option for students to complete their loan interview requirement through their Tex program. Nellie Mae, Educaid (Online Entrance Seminar), and most other major lenders now offer schools and their loan borrowers an online loan interview option. Contact your school's financial aid administrators to determine if you are required to attend a loan interview and the date, time, and location these interviews are offered, and if an online option is available.