Understanding The Principles Of The Stafford Student Loan

In 1965 the US Congress created the Federal Family Education Loan Program (FFELP) to give financial aid to students. One element of this loans program is Stafford loans which were initially designed to assist only those students in very real financial need but which now comprise over ninety percent of all Federal Government education loans.

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

When it comes to subsidized loans the Federal Government assumes responsibility for the payment of any interest accruing on a loan from the date on which the loan is issued until the student is required to begin making repayments. Normally a student will not have to make repayments while he is enrolled on a program of study that is classed as being a 'half-time' or greater program and for a period of six months following the conclusion of his course. A student can however start making payments sooner if he wants to do so.

Because interest on the loan is subsidized, loans are normally only granted on the basis of need and aid officials will consider both a student's and his family's income when determining whether or not the student qualifies for a subsidized Stafford loan. Students must fill out a Free Application for Federal Student Aid (FAFSA) application that includes income details and each student will then be assigned a number referred to as the Expected Family Contribution calculated from the income figures provided.

In the region of two-thirds of all subsidized Stafford loans are granted to students whose parents 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 bracket. At this point however the meaning of 'need' gets somewhat blurred and slightly under one-tenth of loans are given to students whose combined family income is greater than $100,000.

In the case of those students who do not qualify for a subsidized loan the majority will qualify for an unsubsidized Stafford loan. Here the main difference is that students must meet the interest payments on the loan, though once more payment will not usually begin until six months after the completion of the student's program of study.

The mechanics of unsubsidized Stafford loans means that a loan can be very 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 us consider an extremely simplified example.

Let us say that a student borrows $5,000 in his first year at an interest rate of 6.8%. After one year the interest due is $340 and this will be added to the loan. In the following year the student will then accrue interest on $5,340 at 6.8% and this will amount to roughly $363 raising the total debt after two years to $5,703. This example is not entirely accurate because interest is calculated and added monthly but it does nonetheless show the principles underlying this type of loan.

Dependent upon the sum of money that is borrowed each year and the length of time before repayment starts we can see that students can pay a relatively high price for the benefit of delaying the repayment of a Stafford loan.

In spite of the apparently high cost it should be borne in mind that a lot of the alternative methods of funding a college education can be considerably more costly and that many students would not be able to afford to attend college without a Stafford loan.

Article Source: http://www.articlemarketing.org

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

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