Direct Stafford Loans: How To Apply and Get the Most From Them

If you’ve applied for student loans recently or are applying soon, there’s a good chance that you’ll end up with a Direct Stafford loan. More than 33 million borrowers in the U.S. have outstanding Stafford Loans accounting for more than $825 billion in student loan debt.

Continue reading to learn more about Direct Stafford Loans, the different types available, and how to apply for a Direct Stafford Loan.

What is a Direct Stafford Loan?

A Direct Stafford loan is a student loan originated by the federal government through the  William D. Ford Federal Direct Loan program. The program came into existence as a result of the Student Loan Reform Act of 1993 and is now the single largest source of federal financial assistance for college students.

Before the Direct Loan program, student loans were still backed by the U.S. government but they often came from private lenders. Direct Loans come with fixed interest rates set by the government that typically change annually.

Types of Stafford Loans

Two types of Direct Stafford Loans are available — subsidized and unsubsidized. Both types of loans are awarded based on financial need, but vary greatly on when interest is charged on the loans.

Direct Subsidized Loans

Direct Subsidized Loans are available for undergraduate students. With subsidized loans, the government pays the interest while you’re in school. The government also covers interest payments during the grace period after leaving school and during deferment periods.

Direct Unsubsidized Loans

With Direct Unsubsidized Loans, you — not the government — are responsible for paying interest on the loan as soon as the loan is disbursed. Interest starts to accrue from the distribution date until it’s completely paid off. Direct Unsubsidized Loans are available for both undergraduate and graduate students.

Direct Stafford Loan limits

The federal government limits how much you can borrow annually depending on your year of attendance in school. The amount progressively increases as you get closer to graduation.

Year in school	Dependent students	Independent students
1st Year Undergraduate	$5,500 ($3,500 subsidized)	$9,500 ($3,500 subsidized)
2nd Year Undergraduate	$6,500 ($4,500 subsidized)	$10,500 ($4,500 subsidized)
3rd Year Undergraduate	$7,500 ($5,500 subsidized)	$12,500 ($5,500 subsidized)
Graduate or Professional	N/A	$20,500 unsubsidized

Stafford Loans not only have annual limits but also aggregate, or total, loan limits based on your status as a student. The Direct Stafford aggregate loan limits for the 2020-2021 academic year are as follows:

Loan type	Dependent students	Independent undergraduate students	Independent graduate or professional students
Subidized Loan Limit	$23,000	$23,000	$65,500
Unsubsidized Loan Limit	$8,000	$34,500	$73,000
Total Loan Limit	$31,000	$57,000	$138,500

Your loan’s fixed interest rate also depends on your status as a student. Currently, the interest rate on Stafford loans on or after July 1, 2020, and before July 1, 2021, are:

• Undergraduates (subsidized and unsubsidized): 2.75%
• Graduate students (unsubsidized only): 4:30%

The rate you receive on federal student loans is fixed for the life of the loan. The federal government also charges a loan fee on all Direct Stafford Loans.

The loan fee is a percentage of the total loan amount and is deducted when the loan funds are disbursed. For loans disbursed on or after Oct. 1, 2019, through Sept. 30, 2020, the fee is 1.059%. Loans disbursed on or after Oct. 1, 2020, through Sept. 30, 2021, carry a 1.057% fee.

How to apply for a Direct Stafford Loan

The process to apply for a Direct Stafford Loan isn’t complicated, but there are several steps to pay for your education with student loans. Follow these steps when you’re ready to apply for a federal student loan.

1. Submit the FAFSA form

The Free Application for Federal Student Aid (FAFSA) is the first step to receiving federal aid to pay for college. Schools use the information provided on the form to determine eligibility for federal grants, scholarships and student loans.

The federal deadline to submit your FAFSA form for the 2021-22 academic year is

June 30, 2022 (by 11:59 p.m. CT). If you need to make corrections or update information on your FAFSA form, you must submit those changes by Sept. 10, 2022 (by 11:59 p.m. CT). Schools and individual states have their own deadlines, so always check with the proper authorities before starting the process.

2. Review your Student Aid Report

A Student Aid Report (SAR) is a summary of the information you provided on your FAFSA form. Chances are the information is correct, but it’s always a good idea to double-check for any errors or changes you may need to make before it's sent to your desired schools.

3. Select your federal aid award

The schools you listed on the FAFSA form receive your information and determine what programs you qualify for and how much you can borrow. Those schools will contact you with a school aid offer.

You can choose to accept or decline the package they offer. If you aren’t satisfied with the offer, you can appeal the decision and request additional funding. Call the school’s financial aid office for information on how to file an appeal.

4. Complete entrance counseling

If this is your first federal student loan, you’re required to complete an extra step called, “entrance counseling”. The whole process takes about 30 minutes to complete and is completed online.

Entrance counseling walks you through taking out federal student loans, including your repayment options, how interest works, and other important information you need to know.

5. Sign a Master Promissory Note

The process isn’t complete until you sign a Master Promissory Note (MPN). The legal document is a contract between you and the U.S. Department of Education that says you agree to repay your loan and any accrued interest and fees. The document also spells out the terms and conditions of your loan.

Your school’s financial aid office can help you throughout the process if you get stuck. It’s a good idea to stay in touch with them anyway, to ensure everything goes through properly and you’re set to attend when school starts.

Getting the most out of your Stafford Loans

The majority of college students take out loans to fund their education. If you plan to borrow money to pay for college, exhaust federal loan options before seeking help elsewhere.

Direct Stafford loans and other federal loans come with special benefits and programs meant to protect borrowers. With federal loans, you have access to income-driven repayment plans, loan forgiveness programs, deferment and forbearance, and other perks you typically won’t receive from a private lender.

If you still need more financial help after maxing out federal student loan options, you can turn to other options like private student loans. Keep in mind that you’ll need to meet credit and other requirements to qualify for private loans, which is often hard for college students because of a lack of credit history and income. You might need the help of a cosigner to get approved for a private student loan.

The Bottom Line

Just because student loans seem like a given for most college students doesn’t mean that it’s an easy system to navigate. The financial and life implications of adding significant debt like student loans can stretch for decades, especially if you aren’t sure of the best path for you.

If you’re not sure what loans are best for you, book a pre-debt consult with one of our student loan consultants. They work alongside you to help you avoid some of the common mistakes students make and create a repayment strategy that’s manageable after graduating.