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Stafford loans are federally guaranteed loans made to students from the U.S. Department of Education. Also known as Direct loans, Stafford loans have several perks for borrowers, including relatively low, fixed interest rates and eligibility for loan forgiveness programs. Stafford loans may not cover your full cost of attendance, however, since they come with borrowing limits. Let’s take a closer look at what Stafford loans are and how they work for undergraduate and graduate students.
What Are Stafford Loans?
Stafford loans are another name for Direct loans, which are federally guaranteed loans for college, graduate, and professional students attending school at least half-time. Prior to 2010, Stafford loans referred to Federal Family Education Loans (FFEL). However, the FFEL program stopped issuing new loans that year. Today, the term Stafford loan is used interchangeably with Direct loans. Stafford loans are made directly to students with no need for a cosigner. They come with fixed interest rates that are set by Congress on an annual basis. Besides low interest rates and no cosigner requirement, Stafford loans also have a few other perks. For one, they are eligible for a variety of repayment plans and protections, including income-driven repayment, forbearance, and deferment. What’s more, these federal student loans are eligible for forgiveness programs, including Public Service Loan Forgiveness and Teacher Loan Forgiveness. There are two types of Stafford or Direct loans available to students: subsidized and unsubsidized.
Subsidized Loans
Subsidized Stafford loans are available to undergraduate students with demonstrated financial need as determined by the Free Application for Federal Student Aid (FAFSA). The benefit of subsidized loans is that the government will pay for any interest that accrues during your grace period of a period of deferment. The government may also cover some interest charges on certain income-driven repayment plans. While subsidized loans tend to be preferable to unsubsidized ones due to these interest benefits, they have a lower annual borrowing limit.
Unsubsidized Loans
Unsubsidized Stafford loans are available to both undergraduate and graduate students, regardless of financial need. Unlike subsidized loans, you’re responsible for paying any interest that accrues on an unsubsidized loan, even during your grace period or deferment. The benefit of unsubsidized loans, though, is that they have a higher borrowing limit than subsidized ones.
Who Are Stafford Loans For?
Stafford loans are designed for students attending a four-year college or university, community college, or trade, career, or technical school. You can use these loans to pay for tuition, fees, room and board, books, and other education-related costs. You can also draw on loan money to cover your living expenses while you’re in school, but be careful not to borrow too much. If you over-borrow, you could end up with burdensome student loan debt after graduation.
Stafford Loan Interest Rates and Terms
Stafford loans, also known as Direct loans, have fixed interest rates that are set on a yearly basis. Here are the rates for loans borrowed between July 1, 2023, and July 1, 2024:
Subsidized and unsubsidized loans for undergraduates: 5.50%
Unsubsidized loans for graduate and professional students: 7.05%
The Stafford loan interest rate you get when you borrow will stay the same over the life of the loan. Besides interest, these loans also come with an origination fee, which is subtracted from the amount you borrow. The origination fees for both subsidized and unsubsidized Stafford loans borrowed between Oct. 1, 2020, and Oct. 1, 2024, is 1.057%.
Stafford Loan Limits
Stafford loans come with both annual and aggregate borrowing limits. As an undergraduate, you can borrow between $5,500 and $12,500 per year in subsidized and unsubsidized loans, depending on your year in school and dependency status. As a graduate or professional student, you can borrow up to $20,500 per year in unsubsidized loans. This chart breaks down the borrowing limits according to loan type and year in school.
Year in School
Dependent Students
Independent Students
First year undergraduate
$5,500, including up to $3,500 in subsidized loans
$9,500, including up to $3,500 in subsidized loans
Second year undergraduate
$6,500, including up to $4,500 in subsidized loans
$10,500, including up to $4,500 in subsidized loans
Third year undergraduate and beyond
$7,500, including up to $5,500 in subsidized loans
$12,500, including up to $5,500 in subsidized loans
Graduate and professional student
N/A
$20,500
Aggregate limit
$31,000, including up to $23,000 in subsidized loans
Undergraduates: $57,500, including up to $23,000 in subsidized loansGraduate students: $138,500, including up to $65,500 in subsidized loans
If you’ve maxed out your eligibility for federal student loans and still have a gap in funding, consider exploring your options for scholarships, grants, or private student loans.
Stafford Loan Requirements
To qualify for a Stafford loan, you must be enrolled at least half-time in a postsecondary educational program that leads to a degree or certificate. Qualifying schools include four-year colleges, technical schools, and community colleges. You also must meet the general requirements for federal financial aid. These include being a U.S. citizen or eligible noncitizen and maintaining satisfactory academic progress while in school. As mentioned, anyone can qualify for an unsubsidized Stafford loan, but you’ll need to demonstrate financial need to qualify for a subsidized loan.
Applying for Stafford Loans
To apply for a Stafford loan, you need to submit the FAFSA. This free form is available on the Federal Student Aid website or mobile app. You’ll need to submit it annually to receive federal aid for every year you’re in school. Besides student loans, the FAFSA opens the door to grants, scholarships, and work-study. The FAFSA collects your personal and financial information, as well as your parents’ information if you’re a dependent student. Based on these details, it comes up with your Expected Family Contribution, soon to be renamed the Student Aid Index. Your school’s financial aid office relies on this data to put together your financial aid package. You’ll receive a letter from your school detailing your financial aid award. You can choose whether or not to accept any Stafford loans you’re offered. If you find that you’ve borrowed more student loans than you need, you can return them within 120 days without having to pay interest on the amount. Be careful to only use student loans for permitted things.
Can You Refinance Stafford Loans?
You can refinance Stafford loans with a private lender. Depending on your credit and income, a refinancing lender could offer you a better average interest rate than what you have currently. Lowering your interest rate could lead to lower interest charges over the life of your loan. A major word of caution about refinancing Stafford loans, though: doing so means forfeiting access to federal protections. Since refinancing a Stafford loan turns it private, it would no longer be eligible for income-driven repayment, PSLF, or other federal programs. Plus, you’d miss out on federal emergency protections, such as forbearance and deferment. Make sure you don’t need any federal benefits before refinancing your Stafford loans with a private lender.
The Takeaway
Stafford or Direct loans are useful options for undergraduate and graduate students who need help paying for college. They come with relatively low, fixed rates and are eligible for a variety of repayment plans and other protections. At the same time, it’s always a good idea to proceed with caution before taking on debt. Since you have to pay Stafford loans back, try not to borrow an amount that will become burdensome after graduation.
3 Student Loan Tips
Once the pandemic-related pause on federal student loan payments ends, going back to making payments may be hard on budgets. One solution is to refinance to a lower interest rate, longer loan term, or both, depending on your situation. (The tradeoff is that you’ll be forfeiting federal benefits such as repayment programs.) Find and compare your student loan refinance options.
Paying extra each month on your student loan can reduce the interest you pay and so lower your total loan cost over time. (The law prohibits prepayment penalties on federal or private student loans.)
If you teach full-time for five complete and consecutive academic years in a low-income school, you may be eligible for federal student loan forgiveness.
Frequently Asked Questions
What type of loan is a Stafford loan?
What is a Stafford loan and how does it work?
Do you have to pay back Stafford loans?
Photo credit: iStock/gorodenkoff
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About the Author
Rebecca Safier
Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
