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Stafford Loans

Schools generally participate in either the Federal Family Education Loan (FFEL) Program or the William D. Ford Federal Direct Loan (Direct Loan) Program. Under the Direct Loan Program, the funds for your loan come directly from the federal government. Funds for your FFEL will come from a bank, credit union, or other lender that participates in the program

The terms and conditions of both loans are similar. The amounts you may borrow are the same whether you get a Direct Stafford Loan or a FFEL Stafford Loan. The major differences between the two programs are the source of the loan funds and certain repayment provisions

How Can I get a FFEL or Direct Loan?

For either type of loan, you must fill out a FAFSA. After your FAFSA is processed, your school will review the results and will inform you about your loan eligibility. You will also have to sign a promissory note

If you have financial need remaining after your EFC, the amount of any Federal Pell Grant funds you are eligible for, and aid from other sources are subtracted from your cost of attendance, you can borrow a FFEL or Direct Loan to cover some or all of that remaining need. If you are eligible, the government will pay the interest on your loan while you're in school, for the first six months after you leave school, and when you qualify to have your payments deferred. This type of loan is a subsidized loan. If you are eligible for a subsidized loan, the government will pay interest while you're in school, for the first six months after you leave school, and when you qualify to have your payments deferred.

Depending on your financial need, you may borrow subsidized money for an amount up to the annual loan borrowing limit for your year in school. (Annual loan limits are listed below.)

You might also be able to borrow loan funds beyond your subsidized loan amount or even if you don't have demonstrated financial need. In that case, you'd receive an unsubsidized loan. Your school will subtract the total amount of your other financial aid from your cost of attendance to determine whether you are eligible for an unsubsidized loan. Unlike a subsidized loan, you are responsible for the interest from the time the unsubsidized loan is disbursed until it is paid in full. You can choose to pay the interest or allow it to accumulate and be capitalized (that is, added to the principal amount of your loan).

You can receive a subsidized loan and an unsubsidized loan for the same enrollment period as long as it does not exceed the annual loan limits.

So, how will I get the loan money?

For both the Direct Loan and FFEL programs, you'll be paid through your school in at least two installments. No installment may exceed one-half of your loan amount. Your loan money must first be applied to pay for tuition and fees, room and board, and other school charges. If loan money remains, you'll receive the funds by check or in cash, unless you give the school written authorization to hold the funds until later in the enrollment period.

If you're a first-year undergraduate student and a first-time borrower, your school generally cannot disburse your first payment until 30 days after the first day of your enrollment period. This practice ensures that you won't have to repay the loan if you don't begin classes or if you withdraw during the first 30 days of classes.

How much can I borrow?

If you're a dependent undergraduate student, each year you can borrow up to:

•$2,625 if you're a first-year student enrolled in a program of study that is at least a full academic year;

•$3,500 if you've completed your first year of study and the remainder of your program is at least a full academic year;

•$5,500 if you've completed two years of study and the remainder of your program is at least a full academic year.

If you're an independent undergraduate student or a dependent student whose parents have applied and were unable to get a PLUS Loan (a parent loan), each year you can borrow up to:

•$6,625 if you're a first-year student enrolled in a program of study that is at least a full academic year (at least $4,000 of this amount must be in unsubsidized loans);

•$7,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (at least $4,000 of this amount must be in unsubsidized loans.);

•$10,500 if you've completed two years of study and the remainder of your program is at least a full academic year (at least $5,000 of this amount must be in unsubsidized loans).

These amounts are the maximum yearly amounts you can borrow in both subsidized and unsubsidized FFELs or Direct Loans, individually or in combination. Because you can't borrow more than your cost of attendance minus both the amount of any Pell Grant you're eligible for and any other financial aid you'll get, you may receive less than the annual maximum amounts.

What's the interest rate?

The interest rate is variable (adjusted annually) but will never exceed 8.25 percent. You'll be notified any time the variable rate changes

When do I pay back the loan?

After you graduate, leave school, or drop below half-time enrollment, you will have a six-month "grace period" before you begin repayment. During this period, you will receive repayment information, and you'll be notified of your first payment due date. You are responsible for beginning repayment on time, even if you don't receive this information. Payments are usually due monthly.

SOURCE: The U.S. Department of Education's guide "Funding Your Education 2002/2003."

© 2002 The Washington Post Company