Federal Stafford Loans

Stafford Loan Information:

How will I receive my Stafford Loan?

The loan funds will be sent to your school. In most cases, your loan will be disbursed in at least two installments, and no installment will be greater than half the amount of your loan.

Your loan money must first be used to pay for your tuition, fees, and room and board. If loan funds remain, you’ll receive them by check or in cash, unless you give the school written permission to hold the funds until later in the enrollment period.

If you’re both a first-year undergraduate student and a first-time borrower, your first disbursement can’t be made until 30 days after the first day of your enrollment period. That way, you won’t have to repay the loan if you withdraw during the first 30 days of classes. (However, you might owe money to the school for a portion of tuition or other fees.)

Can I cancel the loan if I change my mind, even if I’ve signed the promissory note agreeing to the loan’s terms?

Yes. Your school must notify you in writing whenever it credits your account with your Stafford Loan funds. This notification must be sent to you no earlier than 30 days before, and no later than 30 days after, the school credits your account. You may cancel all or a portion of your loan if you inform your school within 14 days after the date your school sends you this notice, or by the first day of the payment period, whichever is later. (Your school can tell you the first day of your payment period.) If you receive Stafford Loan funds directly by check, you may refuse the funds by returning the check.

What’s the interest rate on these loans?
The interest rate is variable (might change each year) but does not exceed 8.25 percent. For July 1, 2002 to June 30, 2003, the interest rate for loans in repayment was 4.06 percent. Interest rates are adjusted each year on July 1. You’ll be notified of interest rate changes throughout the life of your loan.

Congress changed the interest rate calculation for Stafford Loans made on or after July 1, 1998. If you have loans first disbursed before that date, your interest rate might be different. For interest rates on a FFEL Stafford Loan, check with your lender.

If you have subsidized loans, you won’t be charged interest while you’re enrolled in school at least half time, during a grace period, or during authorized periods of deferment. Interest will begin to accrue (accumulate) when you enter repayment.

If you have unsubsidized loans, you’ll be charged interest from the day the loan is disbursed until it’s paid in full, including in-school, grace, and deferment periods. You can pay the interest during these periods, or it can be capitalized.

Other than interest, is there any charge to get the loans?
You’ll pay a fee of up to 4 percent of the loan, deducted proportionately from each loan disbursement. For a FFEL Stafford Loan, a portion of this fee goes to the federal government, and a portion goes to the guaranty agency to help reduce the cost of the loans. For a Direct Stafford Loan, the entire fee goes to the government to help reduce the cost of the loans. Also, if you don’t make your loan payments when scheduled, you may be charged collection costs and late fees.

When do I pay back these loans?
After you graduate, leave school, or drop below half time enrollment, you have six months before you begin repayment. This period of time is called a grace period.

During the grace period on a subsidized loan, you don’t have to pay any principal, and you won’t be charged interest. During the grace period on an unsubsidized loan, you don’t have to pay any principal, but you will be charged interest. You can either pay the interest or it will be capitalized.

After you leave school or drop below half time enrollment, your lender will send you information about repayment and you’ll be notified of the date repayment begins. However, you’re responsible for beginning repayment on time, even if you don’t receive this information. Failing to make payments on your loan is likely to have a negative effect on your credit rating.

Are there any tax credits available for paying back these loans?
Yes, there are tax incentives for certain higher education expenses, including a deduction for student loan interest for certain borrowers. This benefit applies to federal and nonfederal loans taken out to pay for postsecondary education costs. The maximum deduction is $2,500 a year. IRS Publication 970, Tax Benefits for Higher Education, explains these credits and other tax benefits. You can find out more by calling the IRS at 1-800-829-1040. TTY callers can call 1-800-829-4059.

Is it ever possible to postpone repayment of my loan?
Yes, under certain conditions, you can receive a “deferment” or “forbearance” on your loan, as long as the loan isn’t in default. A deferment allows you to temporarily postpone payments on your loan. If you have a subsidized loan, you won’t be charged interest during the deferment. If your loan is unsubsidized, you’ll be responsible for the interest during the deferment. In that case, if you don’t pay the interest as it accrues (accumulates), it will be capitalized and the amount you’ll have to pay will increase. Click here for the list of deferments available for loans disbursed on or after July 1, 1993. If you’re temporarily unable to meet your repayment schedule, but you’re not eligible for a deferment, your lender might grant you forbearance for a limited and specified period. During forbearance, your payments are postponed or reduced, or your repayment period might be extended. Whether your loans are subsidized or unsubsidized, you’ll be charged interest during a period of forbearance. If you don’t pay the interest as it accrues, it will be capitalized.

You might be granted forbearance if you are

• unable to pay due to poor health or other unforeseen personal problems.
  
• serving in a medical or dental internship or residency.
  
• serving in a position under the National Community Service Trust Act of 1993 (forbearance may be granted for this reason for a Direct or FFEL Stafford Loan, but not for a PLUS Loan).
  
• obligated to make payments (on certain federal student loans) that are equal to or greater than 20 percent of your monthly gross income

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