An Introduction To The Basics Of The Stafford Student Loan
Back in 1965 Congress launched the Federal Family Education Loan Program (FFELP) to give financial assistance to students.
One element of this program is Stafford loans which were initially designed to help only those students in very real financial need but which now make up over 90% of all Federal Government education loans.
Over time Stafford loans have altered with changing conditions and today there are two main forms of the loan - subsidized and unsubsidized.
In the case of subsidized loans the Government accepts responsibility for the payment of interest accruing on a loan from the date on which the loan is issued until the date on which the student has to start repaying the loan.
Usually a student does not have to make repayments as long as he is enrolled on a program of study that is classed as being a 'half-time' or greater program and for a grace period of up to six months after the end of his course.
A student can however begin to make payments at an earlier point if he wishes to do so.
Since the interest is subsidized, loans are usually granted only on the basis of need and officials will look at both a student's and his family's income when determining whether or not the student qualifies for a subsidized Stafford loan.
Students have to fill out a Free Application for Federal Student Aid (FAFSA) application form that includes details of income and each student will then be given a number called the Expected Family Contribution (EFC) calculated from the income figures provided.
About two-thirds of all subsidized Stafford loans are granted to students whose parents have an Adjusted Gross Income of less than $50,000 a year.
Another one-quarter are provided to families in the $50-100,000 a year bracket.
At this point however the meaning of 'need' becomes somewhat blurred and slightly under one-tenth of subsidized loans are provided to students with a combined family income of greater 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.
The main difference here is that students will be required to meet the interest payments on the loan, though once more payment do not generally start until six months after the completion of the student's program of study.
An unsubsidized Stafford loan can be quite costly as the interest accumulates over the period of study and so the capital sum for eventual repayment will also increase.
Let us consider a very simplified example.
Let us assume that a student borrows the sum of $5,000 at the start of his first year and that the interest rate is 6.
8%.
At the end of the year the interest accrued is $340 which will be added to the loan.
In the following year the student will then accrue interest on $5,340 at 6.
8% which will come to some $363 raising the total debt after two years to $5,703.
This example is not wholly accurate as interest is calculated and added monthly but it does nevertheless demonstrate the principles of this form of loan.
Dependent upon the amount of money that is borrowed every year and the time before repayment starts it can be seen that a student can pay a reasonably high price for delaying the repayment of a Stafford loan.
Despite this apparently high cost it must be borne in mind that a lot of the alternative methods of meeting the cost of a college education are considerably more costly and that a lot of students would not be able to afford to go to college without a Stafford loan.
One element of this program is Stafford loans which were initially designed to help only those students in very real financial need but which now make up over 90% of all Federal Government education loans.
Over time Stafford loans have altered with changing conditions and today there are two main forms of the loan - subsidized and unsubsidized.
In the case of subsidized loans the Government accepts responsibility for the payment of interest accruing on a loan from the date on which the loan is issued until the date on which the student has to start repaying the loan.
Usually a student does not have to make repayments as long as he is enrolled on a program of study that is classed as being a 'half-time' or greater program and for a grace period of up to six months after the end of his course.
A student can however begin to make payments at an earlier point if he wishes to do so.
Since the interest is subsidized, loans are usually granted only on the basis of need and officials will look at both a student's and his family's income when determining whether or not the student qualifies for a subsidized Stafford loan.
Students have to fill out a Free Application for Federal Student Aid (FAFSA) application form that includes details of income and each student will then be given a number called the Expected Family Contribution (EFC) calculated from the income figures provided.
About two-thirds of all subsidized Stafford loans are granted to students whose parents have an Adjusted Gross Income of less than $50,000 a year.
Another one-quarter are provided to families in the $50-100,000 a year bracket.
At this point however the meaning of 'need' becomes somewhat blurred and slightly under one-tenth of subsidized loans are provided to students with a combined family income of greater 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.
The main difference here is that students will be required to meet the interest payments on the loan, though once more payment do not generally start until six months after the completion of the student's program of study.
An unsubsidized Stafford loan can be quite costly as the interest accumulates over the period of study and so the capital sum for eventual repayment will also increase.
Let us consider a very simplified example.
Let us assume that a student borrows the sum of $5,000 at the start of his first year and that the interest rate is 6.
8%.
At the end of the year the interest accrued is $340 which will be added to the loan.
In the following year the student will then accrue interest on $5,340 at 6.
8% which will come to some $363 raising the total debt after two years to $5,703.
This example is not wholly accurate as interest is calculated and added monthly but it does nevertheless demonstrate the principles of this form of loan.
Dependent upon the amount of money that is borrowed every year and the time before repayment starts it can be seen that a student can pay a reasonably high price for delaying the repayment of a Stafford loan.
Despite this apparently high cost it must be borne in mind that a lot of the alternative methods of meeting the cost of a college education are considerably more costly and that a lot of students would not be able to afford to go to college without a Stafford loan.
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