Understanding The Basics Of The Government Stafford Loan Scheme


Education:

More than forty years ago now back in 1965 the United States Congress instituted the Federal Family Education Loan Program (FFELP) to give financial aid to students. One element of this loans program is Stafford loans which were originally designed only to help those students in very real financial need but which nowadays make up more than ninety percent of all Federal Government education loans.

Since their inception Stafford loans have altered with changing conditions and nowadays there are two main types of the loan - subsidized and unsubsidized Stafford loans.

In the case of subsidized loans the Government takes responsibility for the payment of any interest that accrues on a loan from the date of issue until the student is required to begin repaying the loan. In normal circumstances a student will not have to make repayments as long as he remains enrolled in a program of study that is classed as being a 'half-time' or greater program and for a grace period of six months following the end of his course. A student may however begin making payments at an earlier point if he so chooses.

Since interest on the loan is being subsidized, these loans are normally granted only on the basis of need and officials will consider both a student's and the family's income when determining whether a student qualifies for a subsidized Stafford loan. Students must complete a Free Application for Federal Student Aid application form that includes income details and the student will then be assigned a number referred to as the Expected Family Contribution (EFC) calculated from the income figures provided.

Approximately two-thirds of subsidized Stafford loans are granted to students with parents who have an Adjusted Gross Income of under $50,000 a year. A further one-quarter are granted to those in the $50-100,000 a year range. After this the definition of the term 'need' gets a little blurred and slightly less than one-tenth of subsidized loans are allocated to students whose combined family income is in excess of $100,000.

For those students who do not qualify for a subsidized loan most will qualify for an unsubsidized Stafford loan. The main difference here is that students have got to meet all loan interest payments, though again payment do not generally begin until six months after the end of the student's course.

Unsubsidized Stafford loans can be reasonably costly because interest builds during the period of study and so the capital sum on which repayment will eventually need to be made will also grow. Let's take a very simplified example.

Let's say that a student borrows the sum of $5,000 in his first year of study and that the interest rate is 6.8%. After one year the interest accrued will be $340 which will be added to the loan capital. During the second year the student will accrue interest on the new capital sum of $5,340 at 6.8% which will come to some $363 increasing the total borrowed after two years to $5,703. Of course this is not completely accurate because interest is in fact calculated and added on a monthly basis but it does nonetheless show the principles underlying this type of loan.

Dependent upon the sum of money that the student borrows every year and the time before repayment begins you can see that a student can pay a quite high price for the benefit of delaying the repayment of a Stafford loan.

Despite the seemingly high cost it should be remembered that many of the alternative methods for meeting the cost of a college education can be considerably more costly and that many students would simply not be able to afford to attend college without the Stafford loans scheme.

TheStudentLoansCenter.com provides information on Stafford student loans and Federal and State student loans and grants


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