The Stafford Loan: Getting the Financial Assistance You Desperately Need

Like so many other college and university students you find that you are in need of financial assistance to pay for your education. You may have seen the name or read something about the Stafford Loan but don't know how it works.

The Stafford is a student loan available to qualified students attending a recognized college or university. The requirements for acceptance are strict and there are borrowing limits. If you decide to apply for the Stafford Loan, you must first submit a FAFSA.

Stafford Loans come in two forms; Subsidized and Unsubsidized. If you are experiencing financial hardships and based on your FAFSA you may be granted the Subsidized Stafford Loan. You aren't required to pay interest on that loan as that interest is repaid to the lending source by the government while you are in school. But you are responsible for paying the principal when the loan comes due.

Unsubsidized Stafford Loans are commonly approved by the federal government. With this type of loan, you are responsible for paying the interest on the loan. However, you aren't required to repay any part of that loan until a six month grace period is terminated after graduation. If you do decide not to pay any interest while in school, it is then capitalized. Capitalization is defined as: the interest that accumulates is added to the principal loan balance and interest then begins accumulating on that new principal balance. Basically you are paying interest on interest. So if you can pay the interest while in school you can save money.

There are some private agencies that can help you with funding a Stafford Loan offering very low interest rates. You also can receive Stafford Loans sponsored by state tax exempt bonds through government appointed institutions in the state where you will be attending school. This can help you to cut down on the cost of your loans. You could even qualify for incentives such as interest cuts for making your payments in a timely manner.

The U.S. Department of Education allows you to consolidate only once, so you may want to go over this with a financial aid adviser when discussing financial aid and student loans. There is an advantage to this because your monthly payments can be lowered by stretching out your loan, but you need to be aware that the rates could change. Loan consolidation is popular because of the convenience of having to make just one monthly payment especially if you have several loans.

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