Examining The Basics Of Stafford Student Loans

In 1965 the United States Congress set up the Federal Family Education Loan Program (FFELP) in order to give financial aid to students. One part of this loans program is Stafford loans which were initially intended to assist only those students in real financial need but which now account for over ninety percent of all Federal education loans.

Since their inception Stafford loans have evolved to take account of changing conditions and nowadays there are two main forms of the loan - subsidized and unsubsidized.

In the case of subsidized loans the Federal Government assumes responsibility for the payment of any interest accruing on a loan from the date on which the loan is issued until the student has to start repaying the loan. Generally a student will not be required to make repayments while he remains enrolled in a program of study which is classed as being a 'half-time' or greater program of study and for a grace period of six months after the end of his course. However, a student can begin making payments sooner if he so chooses.

Since the interest on the loan is subsidized, loans are normally granted only on the basis of need and aid officials will consider both a student's and his family's income when deciding whether or not a student qualifies for a subsidized Stafford loan. Students must complete a Free Application for Federal Student Aid application form which includes income details and the student will then be given a number called the Expected Family Contribution (EFC) calculated from the declared income figures.

Approximately two-thirds of all subsidized Stafford loans are provided to students with parents having an Adjusted Gross Income of under $50,000 per year. Another one-quarter of subsidized loans are granted to those in the $50-100,000 per year range. After this the meaning of 'need' gets a little fuzzy and slightly under one-tenth of subsidized loans are granted to students whose combined family income is more than $100,000.

In the case of those students who do not qualify for a subsidized loan most will be eligible for an unsubsidized Stafford loan. Here the major difference is that the student must meet the loan interest payments, although once more payment do not usually start until six months after the completion of the student's program of study.

The workings of unsubsidized Stafford loans means that a loan can be reasonably expensive as the interest accumulates over the period of study and so the capital sum for eventual repayment will also grow. Let us look at a very simplified example.

Let's assume that a student borrows the sum of $5,000 at the start of his first year at an interest rate of 6.8%. At the end of the year the interest due is $340 and this will be added to the loan capital. During the next year the student will then accrue interest on the new capital sum of $5,340 at 6.8% and this will come to roughly $363 raising the total borrowed after two years to $5,703. Of course this is not entirely accurate as interest is calculated and added on a monthly basis but it does nevertheless show the principles underlying this form of loan.

Depending on the sum of money which is borrowed every year and the length of time before repayment begins it can be seen that students can pay a relatively high price for the benefit of delaying the repayment of this form of education loan.

Despite the apparently high cost it has to be remembered that a lot of the alternative methods for meeting the cost of a college education can be considerably more expensive and that many students would simply not be able to afford to go to college without the Stafford loans scheme.

TheStudentLoansCenter.com provides information on Stafford college loan money and Federal and State student loans and grants