Direct Stafford Loans Investopedia Friday, October 10, 2014
Mark P. Cussen, CFP®, CMFC, AFC
There are many different types of financial aid to help students and their families pay college tuition costs. Front and center, generally offering the best deals – except for an outright grant or scholarship, of course – are federal student loans. (See College Loans: Private Vs. Federal .)
Stafford loans, also called direct Stafford loans because the funds come directly from the federal government not through a private lender, are the most widely used of these loans today. One of their biggest advantages is that they do not require a credit check, any form of collateral or a co-signer, which means that borrowers with poor credit scores and low incomes can qualify for them, as long as they meet the other criteria for borrowers.
Available subsidized or unsubsidized, with different qualifications and options in each case, Stafford loans can be used to pay a student's Total Cost of Attendance (TCA). These expenses include tuition, books, lab fees, room and board, and any other pertinent educational expenditures. For details on qualifying for a loan and the differences between the two types, see Stafford Loans: Subsidized Vs. Unsubsidized .
How Much Can You Borrow?
Stafford loans resemble other types of federal student loans in that there is both an annual and a cumulative ceiling on the dollar amount that can be borrowed. Factors that affect these limits include whether the loans are subsidized or not, the borrower’s dependency status for tax-filing purposes, the year in school of the student (for example, is he or she is a freshman or a senior), and whether the loans are being used to pay for medical school.
Some exceptions permit students to increase their borrowing in a particular year. Those who move from one grade to another during an academic year (such as becoming a sophomore after the fall semester) become eligible to borrow the entire new loan amount a sophomore can get in addition to what they already could borrow as a freshman. Students who transfer from one institution to another may borrow the maximum loan amount allowed for both schools in one year.
Unsubsidized loans. There are no income restrictions on eligibility for a unsubsidized loan. They are also the only type available for graduate education. The following table shows the loan limits:
Unsubsidized Federal Stafford Loan – Undergraduate Students