Federal Direct Subsidized Stafford Loans

Federal Direct Subsidized Stafford Loan Program

The Federal Direct Subsidized Stafford Loan Program is a popular loan program which is widely used by students. This loan program is need-based and students are required to be enrolled in a degree granting program at least half-time. This loan is in the student’s name and social security number thus the student is fully responsible for paying back the loan.

For the 2016-17 academic year, the fixed interest rate is currently at 3.76% (based on information available October 2016).

As this loan is subsidized, no interest will accrue on this loan while the student is enrolled at least half-time or during the six month grace period that this loan offers. Since the U.S. Department of Education is the lender for the Federal Direct Subsidized Stafford Loan, students will repay the loan directly to the U.S. Department of Education. There is a 1.069% origination fee on this loan which will be deducted from the proceeds of the loan. For example, in the case of a $3,500 Federal Direct Subsidized Stafford Loan, a fee of $37.42 (1.069% of the loan amount) will be deducted from the loan proceeds, yielding the student a net loan amount of $3,462.58 for the year. Even though there is a 1.069% fee for this loan, the loan terms and repayment conditions make it one of the better student loan options available.

The Annual Borrowing Limit for the Federal Subsidized Stafford Loan Program for the Freshman Year is $3,500 per student and there is a 1.069% origination fee deducted from the loan proceeds.

There is an aggregate borrowing limit for undergraduate borrowers of a total of $23,000 for this loan program for all years (in the event that an undergraduate student attends a fifth year of college there still is eligibility for this program up to the aggregate borrowing limit). If a student demonstrated financial need each year and borrowed the maximum amount of Federal Direct Subsidized Stafford Loan for four years of college, the student would borrow a total of $19,000 in Federal Direct Subsidized Stafford Loans.

Federal Direct Subsidized Stafford Loan Borrowing Limits

Year in School Borrowing Limit
Freshman $3,500
Sophomore $4,500
Junior $5,500
Senior $5,500
Total for Four Years $19,000 *

* For a student attending a four-year college, a student would borrow $19,000 total if they were awarded the maximum amount of Federal Direct Subsidized Stafford Loan during each of the four years of college. If a student were to attend the college a fifth year, eligibility for this program would be limited to $4,000 as the aggregate borrowing limit is $23,000. This loan program is based on need thus students must meet eligibility requirements as determined by filing the FAFSA.

Lets talk some about loan repayment so you have a sense of what these loans cost in the long run. THESE EXAMPLES USE THE HIGHER RATE FROM A RECENT PAST ACADEMIC YEAR! Using the sample interest rate of 6.8% for a loan amount of $3,500.00 (the maximum amount for freshman year) under the standard repayment plan, the student would pay $50.00/month for 90 months and would pay a total of $4,471.02 – that amount includes a total interest charge of $971.02. This is a repayment estimate and calculated using the loan calculator on the Federal Student Aid website and provided to give you a sense of the true cost of borrowing.

Let’s take another look at loan repayment, this time using a much higher loan amount – total Federal Direct Stafford Loans totaling $19,000. This would be the total loan amount if the maximum was borrowed each year for four years of undergraduate study with a SAMPLE 6.8% fixed interest rate under the Standard Repayment Plan. Payments would be $218.65 month for 120 months (ten years) with a total interest charge of $7,238.00. This is a repayment estimate and calculated using the loan calculator on the Federal Student Aid website and provided to give you an idea of the student’s repayment responsibility if they ONLY borrow through the Subsidized Stafford Loan Program.

Additional Federal Direct Stafford Loan Repayment Examples are included here!

Loan borrowing should be a consideration when figuring out college financing options and the student’s future earning potential should be taken into consideration and compared to salaries in their anticipated career area.

Loan calculators are an important planning tool when figuring out college financing options. Be sure to use the loan calculators as a guide for planning purposes.

More information on loan program considerations is included in Financial Aid Sense: A Practical Guide. Check out this newly updated financial aid guide.

"Financial Aid Book"

 

Jan Marie Combs, EzineArticles Basic Author