Stafford loans are fixed-rate student loans mostly from the U.S. government. They are usually offered at a lower interest rate than private student loans or other types of student loans. Stafford loans are offered by a number of different loan service providers, but a federal direct Stafford loan is a loan offered directly from the U.S. Department of Education.
A Stafford loan is available to students who are going to school at least part time. Some Stafford loans, including a specific type of federal direct Stafford loan called a subsidized Stafford Loan, charge no interest while the student is in school. These loans do not charge interest because the government subsidizes or pays the interest during that time. Other Stafford loans charge a low interest rate which the government subsidizes.
When one graduates, Stafford loans charge interest at a relatively low rate. Stafford Loans, including the federal direct Stafford loan, usually have long repayment periods, and can be put into deferment or forbearance if one begins to have financial difficulty. This means if one cannot pay a federal direct Stafford loan, payments can be suspended without incurring a penalty. In some cases, if the student is still in school or makes below a certain income level, the government will even pay the interest while the loans are deferred.
There are many different lenders that provide Stafford loans. Some of these companies are private companies, which means that they lend the money and manage the federal Stafford loans. The government still subsidizes the interest and guarantees the Stafford loan, even when a private company lends the money. The private company is considered to be the servicer of the loan, and the student makes payments to them.
To apply for a federal direct Stafford loan, one can apply directly to the Department of Education. These loans, also called direct loans, are provided and serviced by the government itself, instead of through a third party. Borrowing Stafford loan funds directly from the government can be a wise financial move as the Department of Education might offer more opportunities for loan forgiveness and more favorable payment terms. Students might also get benefits like a lowered interest rate for making on-time payments for a federal direct Stafford loan.
When applying for a federal direct Stafford loan or other type of Stafford loan, one has to submit an application and provide a credit score. It may be easier to qualify for federal Stafford loans, even with low or no credit, as long as one has not defaulted on a previous student loan. It is important to understand that, like all student loans, a federal direct Stafford Loan cannot be discharged in bankruptcy and must be repaid in full.