The E-Z Guide To Student Loans (Stafford Loans)

Student Loans are a bit overwhelming at first. Especially when you’ve just graduated high school and you have so much other stuff on your plate.

I remember when I graduated high school, the only thing I wanted to know was “What will it take for me to get a college degree”. Whatever it was, I was prepared to do it. So I applied for financial assistance using FAFSA (the letters stand for Free Application for Federal Assistance in case you were wondering). Then once I actually got to college, I was ushered into a room and made to sign all this paperwork with the underlining idea being: Unless you’re going to pay your tuition cash or through some scholarship fund, you need to sign these student loan documents. I ended up signing and practically forgot about my student loans until I graduated. Then I got the bill…. OH BOY!

I believe everyone should know something about student loans before signing your life away… I mean the loan documents. Not to say that student loans are BAD per say, just that an informed person is more prepared to deal with something than someone who doesn’t know their hands from their feet.

So let’s get into it!

What kind of Student Loans are there?

The first one we’ll discuss is: The Direct Stafford Loan

The money being borrowed from this loan comes directly from your good ol’ Uncle Sam. Yes, Uncle Sam cares about you too! Direct Stafford Loans are “low-interest loans for eligible students to help cover the cost of higher education at a four-year college or university, community college, or trade, career, or technical school.” I’m sure you’re asking what the requirement is to receive the Direct Stafford Loan and as with all complicated questions, the answer is, IT DEPENDS.

There’s two types of Stafford Student Loans

There’s the Subsidized Stafford Loan and then there’s the Unsubsidized Stafford Loan.

With the Subsidized Stafford Loan, you are not charged interest as long as you’re enrolled into school at least half-time and during grace periods and deferment periods. The Federal Government actually pays the interest for you while you’re still in school. So the loan value is actually the same amount you really borrowed. Sounds great right? Well there’s a catch. The catch is that this loan is dependent on the financial needs of the student. This loan isn’t available to everyone, its availability actually dependent on what tax bracket you and your parents fall into. Another catch is that your school actually determines how much you can barrow.

The second type of Stafford Loan is Unsubsidized Stafford Loan. This type of loan is geared toward those who are qualified for Subsidized Stafford Loans, but need a little more money to pay their tuition as well as those that aren’t qualified for Subsidized Stafford Loans but still need money to pay their tuition. Just about every household is eligible for Unsubsidized Stafford Loans.

How is that possible? Well for Unsubsidized Stafford Loans interest begins accumulating from the first time money is paid out. So the very first semester that your Unsubsidized Stafford Loan is applied to is also the beginning of interest accumulation on your loan. What that also means is the longer you decide to stay in college, the more interest will accumulate on your loan.

What a great way to motivate you to complete your degree in 4 years right? Well, not really, but it’s definitely worth keeping in mind. However, as a word of advice, you should try paying at least your accumulated interest while your still in school to avoid blowing up your loan even further. By doing so, you could get the same benefit that Subsidized Stafford Loans give by only being responsible for the amount of your loan by the time you graduate. If you decide not to pay anything towards your loan while still in school, you’ll end up with a hefty bill by the time you graduate since your accumulated interest ends up accumulating its own interest as well.

Another important point about Unsubsidized Stafford Loans is that, like Subsidized Stafford Loans, your school decides on the amount you receive. The Unsubsidized Stafford Loan isn’t quite the blank check you wished for, but it does help take care of those semesters at more expensive schools.

How much money can you barrow with the Stafford Student Loan?

Well as I mentioned above, ultimately your school decides that, but they also have to work within the limits set by the loan. The maximum amounts your school could allow you to barrow are listed below:

Dependent Undergraduate Student (except students whose parents are unable to obtain PLUS Loans)

First Year: $5,500- No more than $3,500 of this amount may be in subsidized loans.

Second Year: $6,500- No more than $4,500 of this amount may be in subsidized loans.

Third Year: $7,500- No more than $5,500 of this amount may be in subsidized loans.

Maximum Total Debt from Stafford Loans When You Graduate* (aggregate loan limits): $31,000-No more than $23,000 of this amount may be in subsidized loans.

Independent Undergraduate Student (and dependent students whose parents are unable to obtain PLUS Loans)

First Year: $9,500-No more than $3,500 of this amount may be in subsidized loans.

Second Year: $10,500-No more than $4,500 of this amount may be in subsidized loans.

Third Year: $12,500-No more than $5,500 of this amount may be in subsidized loans.

Maximum Total Debt from Stafford Loans When You Graduate* (aggregate loan limits): $57,500-No more than $23,000 of this amount may be in subsidized loans.

Graduate and Professional Degree Student

First, Second, and Third Years: $20,500-No more than $8,500 of this amount may be in subsidized loans.

Maximum Total Debt from Stafford Loans When You Graduate* (aggregate loan limits): $138,500-No more than $65,500 of this amount may be in subsidized loans. The graduate debt limit includes Stafford Loans received for undergraduate study.

* You can spend more than 4 years in college but the maximum total amount you barrow from the Stafford Loan cannot exceed the limit above.

Here’s an interesting fact:

Outstanding Student Loan Debt in the USA is about $850 Billion and growing while consumers owe about $828 billion in revolving credit, including credit card debt.

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Federal Student Loan Guide

After reading over some of my previous posts, I decided that it may be a good time to start at the beginning seeing as I never really did. I’ve given suggestions on how to curb average college graduate debt but in all reality some students and parents alike may be wondering what kind of loans there even are for college educations.

1. Stafford Loans

Federal Stafford Loans are loans offered by the Department Education to help subsidize your personal and families resources. They also cover above and beyond scholarships, work study, and grants. Almost all students can get Stafford Loans no matter what your credit score is or other financial problems you may have had in the past. There are both Unsubsidized and Subsidized loans, both of which, are guaranteed by the Federal Government.

Below are the Stafford Loan Limits throughout your college career.

Stafford Loan Limits

Dependent Students Annual Loan Limits
First Year $5,500 ($3,500 subsidized/$2,000 unsubsidized)
Second Year $6,500 ($4,500 subsidized/$2,000 unsubsidized)
Third Year and Beyond $7,500 ($5,500 subsidized/$2,000 unsubsidized)

Independent Students Annual Loan Limits
First Year $9,500 ($3,500 subsidized/$6,000 unsubsidized)
Second Year $10,500 ($4,500 subsidized/$6,000 unsubsidized)
Third Year and Beyond $12,500 ($5,500 subsidized/$7,000 unsubsidized)
Graduate or Professional $20,500 ($8,500 subsidized/$12,000 unsubsidized)

Lifetime Limits
Undergraduate Dependent $31,000 (Up to $23,000 may be subsidized)
Undergraduate Independent $57,500
Graduate or Professional $138,500 (Up to $65,000 may be subsidized)
or $224,000 (for Health Professionals)

2. Parent PLUS Loan

A Federal Parent PLUS Loan is a loan that parents of dependent students can apply for to help pay for the remainder of school that the financial aid package did not cover. It can cover up to the full cost of the student’s tuition. Parents must pass a credit check to be approved for this loan, the only way around it is to get a friend or a relative to guarantee the loan. I would not suggest this for anyone.If someone asks you to do this, who is not your own personal child, you are setting yourself up for disaster. As of right now the interest rate for this loan is a 7.9% fixed rate. This loan is a 10-year loan and it is required that you must pay at least $50 a month and repayment begins 60 days after the full amount of the loan is dispersed.

3. Federal Perkins Loan

A Perkins Loan is a federal loan given to undergraduate and graduate students with exceptional financial needs. It has a low interest rate at 5% and unlike other loans, it has to be applied through the student’s financial aid office at their school. Depending on what amount you need for school, the amount per year that an undergraduate student can obtain is $4,000, with the maximum amount allowed total per student is $27,500. For a graduate student, the maximum amount per year is $8,000 and $60,000 total which would include the undergraduate amount requested previously.

4. Graduate PLUS Loan

The Graduate PLUS Loan is almost exactly like the Parent Plus Loan except for the fact that it is for a Graduate Student to apply for. The Graduate PLUS loan is a fixed rate interest rate at 7.9%. Graduate students must apply for this based on credit scores and not on a need basis. The loan allows graduate students to apply for the loan for tuition, room and board, books, lab expenses, minus any other aid that the student is currently receiving. Payments can be deferred while you are currently enrolled in a program and the interest that is accrued is tax deductible for most graduate students.

This is just a basic overview of some student loans that you can receive or actually obtain. Depending on requests, I will write a more in depth analysis of each topic if people find it helpful. If not, I will leave it like this if everyone would like to research more on your own.

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