Direct Stafford Loans are the most common source of loan funds. There are two types: direct subsidized and direct unsubsidized. Your FAFSA will establish your eligibility for both.
You may also qualify for a federal PLUS loan.
Direct Subsidized Loans are need-based loans. Full-time students may be eligible to borrow up to $3,500 the first academic year, $4,500 the second, and $5,500 the third year and each year beyond. While you attend school, the federal government pays the interest on the loans, during the grace period before repayment begins, and during periods of deferment. Payments begin six months after you graduate, drop below half time, or withdraw from school. To qualify for a direct subsidized loan, you must meet all the requirements for federal financial aid and have had your eligibility for a Pell Grant determined.
Direct Unsubsidized Loans are for all qualified students and are not based on income or assets. This means you have to meet the same requirements for the direct subsidized loan, but you don't have to demonstrate financial need. Students who are ineligible or have limited eligibility for the subsidized loans may apply for the unsubsidized loan. Dependent students may borrow from the unsubsidized loan program up to an additional $2,000 per academic year. Independent students may borrow from the unsubsidized loan program up to an additional $6,000 per academic year. One main difference with the direct unsubsidized loan is that interest accrues from the time the loan is disbursed. Interest payments begin immediately but can be deferred while you are in school. Repayment begins six months after you graduate, drop below half-time, or withdraw.
These low-interest loans have a fixed rate of 4.5% for direct subsidized loans first disbursed between July 1, 2010 and June 30, 2011. Direct unsubsidized loans are fixed at 6.8%. Total undergraduate borrowing may not exceed $23,000 for dependent students and $57,500 for independent students (no more than $23,000 of which may be in subsidized Stafford loans). Unless you qualify and opt for an alternative repayment plan, you must repay Stafford loans within 10 years.
Direct PLUS Loans enable parents of dependent undergraduates with good credit histories to borrow up to a maximum of the student's unmet costs. Direct Plus loans are fixed at 7.9%. Parent's first payment is due 60 days after the final loan disbursement. To qualify for the PLUS loan, you must meet the requirements for federal financial aid. Your parents must meet some of these general requirements.
