Below you will find a quick-list of the things
you need to know about Stafford loans before you sign on the dotted
line. Please read this carefully as there are many misconceptions about
this very common federal loan. 

Eligibility for Stafford Loans

• You must have submitted a FAFSA form.
• For subsidized loans you must have a financial need as determined by your school.
• You must be a U.S. citizen or national, a U.S. permanent resident, or eligible non-citizen.
• You must be accepted for enrollment or a school that participates in the FFEL Program or Direct Loan Program.
• You must be enrolled at least half-time at you school.

Stafford Loan Benefits

• Low interest rate
  - For Stafford loans first disbursed beginning July 1, 2006, the
  interest rate is Fixed at 6.8% Loans first disbursed before July 1,
  2006 have a variable interest rate of 6.54% in grace and 7.14% in
  repayment.
• Subsidy of Interest on Subsidized Stafford Loans - see below for more information on the two different types of Stafford loans.
• Grace Period - Stafford loans offer you a 6-month grace period after you finish school or are taking less than 6 credit hours. See Grace Period for more information.
• Deferment / Forbearance
  - Stafford loan payments can be postponed by using deferment or
  forbearance after your grace period expires. There is an important
  distinction between deferment and forbearance. See below for details.
• Option of locking into a fixed rate - Stafford rates can be locked-in through consolidation
  so the rate does not increase. Rate incentives after consolidation can
  also take your rate down from your locked-in rate for on-time payments
  or for signing up for automated payments.
• Credit is not a factor
  - Qualifying for a Stafford loan does not require good credit or any
  credit at all. Stafford loans are awarded based on your financial need
  assessment as determined by your Student Aid Report. You can generate a
  Federal Student Aid Report by completing the FAFSA form.
• Loan Forgiveness
  -Under certain circumstances, your Stafford loans can be forgiven. For
  a large list of student loan forgiveness programs, visit http://www.finaid.org/loans/forgiveness.phtml

 There are two different types of Stafford Loans: Subsidized and Unsubsidized.

• Subsidized
  This loan is awarded basis of financial need. You won’t be charged any
  interest before you begin repayment or during authorized periods of
  deferment. The federal government subsidizes the interest during these
  periods.
• Unsubsidized
  This loan is not awarded on the basis of need. You will be charged
  interest from the time the loan is disbursed until it is paid in full.
  If you allow the interest to accrue while you’re in school or during
  other periods, it will be capitalized- that is, the interest will be
  added to the principal amount of your loan, and additional interest
  will based on the higher amount.

 A Stafford Loan is not free money.
It
is a loan. That means you must pay it back once you stop taking classes
more than half-time.

 Deferment
If you cannot afford to make payments on your loans, you may qualify
for a deferment. This is a period of time when you don’t have to make
payments on your loans. During a qualified period of deferment, the
U.S. Government will pay the interest on any subsidized Stafford loans
you have. It is called a qualified period of deferment if you apply and
are approved for any of the following types of deferment. The
requirements for each are also listed.

• In-School Deferment
  - Your school must send proof of enrollment to the lender. This type of
  deferment usually happens automatically whenever you enroll for
  half-time credit work or more at a school that participates in the
  federal student loan program.
• Economic Hardship Deferment
  - You must apply and be approved based on your income and monthly
  student loan payments. You must also provide proof of the income level
  you indicated on the application for deferment by sending in your two
  most recent pay stubs.
• Unemployment Deferment
  - You must not be employed at all and registered with an unemployment
  agency. You will also be asked to send out a certain number of resumes
  or job applications per month to prove that you are actively seeking
  employment.

Each
borrower has a maximum of 3 years of deferment available. Deferments
are valid for up to one year, your situation must be re-evaluated to
determine if you can afford to make payments. After three years of
deferment are taken advantage of, and if the borrower still cannot pay,
the lender will place the borrower into a forbearance instead.

You must apply for deferment with your lender if you wish to defer making payments.  

Forbearance
If you are having difficulty making payments, but do not qualify for a
deferment, then you may request a forbearance. A forbearance is much
like a deferment, except the federal government will not pay the
interest on any loan, whether it is subsidized or unsubsidized. As long
as you have communicated to your lender and agreed on a timeframe that
you want your loans to be placed into forbearance, you do not have to
make payments until the agreed time ends.

Borrowers
also have 3 years of forbearance, that can be taken at a maximum of 1
year at a time. The borrower’s situation must be re-evaluated after
each year. Once those 3 years of forbearance are used up, the borrower
must begin making payments. Sometimes a lender may offer an
administrative forbearance. But this is rare.

You must apply for a forbearance with your lender if you wish to forbear payments.  

Grace Period
Your grace period is the 6-month period of time between the time you
stopped studying half-time or more and when your first payment is due.
This period of time is intended to allow you to get settled into your
new work environment, and also to give the lender time to get your loan
records in order so they can start sending you billing statements.

It
is also important to note that your interest rate on your Stafford
loans remains at the lower in-school rate during your entire grace
period, and raises 0.6% immediately when your grace period ends. If you
can consolidate during your grace period before your grace period ends,
you can lock-in to a significantly lower interest rate than if you
waited until your repayment begins.  

Origination / Guaranty Fee
Almost all Stafford lenders charge both an origination fee and a
guaranty fee. The origination fee covers the cost of processing your
loan paperwork, mitigates risk for the lender, and covers miscellaneous
fees payable to the Department of Education for the cost of maintaining
and enforcing regulations on the federal student loan programs. The
Guaranty fee is a charge from the Guarantor to guarantee the loan, and
enforce Federal Loan Program compliance with the lender. These charges
may vary slightly from lender to lender, depending on the guaranty fee,
but can be up to 1% for guaranty, and up to 3% for origination.  

Default
If you fail to pay your loans in spite of the benefits mentioned above,
and are delinquent on your payments for a period of 270 days (or
roughly 9 months) you are considered to be in default.

IMPORTANT NOTE ABOUT DEFAULT:

Federal
Student Loans cannot be discharged because of bankruptcy, default,
borrower negligence, or inability to pay. As long as you are alive and
capable of work, you will have to pay back your Federal Student Loans
without exception. If you default on your Federal Student Loans, the
Federal Government has the power to garnish your wages from any
employer you work for.

Your credit rating will also be damaged if you default on your student loans.

Stafford loans are better than private loans.
Below is a simple comparison between Stafford and private loan
programs. From this table, the advantages of Stafford loans over
private loans is clearly seen.

Source

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