Federal Student Aid: Stafford Loans 101

By John L. Fischer, Personal Finance Writer   

Striving for higher education can be tough enough. Reaching into your bank account to pay for it can be even tougher.

But there is some good news out there in Student Financial Aid Land:

Thanks to the College Cost and Reduction Access Act of 2007, student loan rates and payments should be a lot more manageable — even if you (or your child) didn't make all A's on your last credit report.

Federal student loans: Your tax dollars can help send you to college

Okay, pop quiz:

Q: What's a subsidized Stafford loan?

A: A low-interest, federally-funded education loan made directly to the student.

Q: How does a subsidized Stafford Loan work?

A: For starters, a subsidized Stafford Loan doesn't require a credit evaluation.

Your credit history — good or bad — doesn't matter. (Subsidized Stafford loans are primarily designed for aspiring students with bad credit, though.)

Q: Who is the student loan borrower?

A: You (the student); the loan must be paid directly to you.

Q: Who determines your student loan eligibility?

A: The college or university you plan to attend.

Q: What kind of interest rates are there?

A: Loan rates will vary, but under the College Cost and Reduction Access Act, interest rates may be less than 4%.

Even better, you don't have to start paying any interest until six months after you graduate (or six months after you decide not to continue your course of study — at least on a part-time basis).

Check with your school for more specific information. Most schools require you to take at least half the regular course load to remain eligible for a subsidized Stafford loan.

Q: What are the loan limits and repayment plans?

A: Specific loan limits and repayment requirements may vary by school. Visit www.govloans.gov and click on "education" for more details. [Suggestion: Separate/internal browser takes reader to gvt. site.]

Finally, here's a little "extra credit": The Federal Guaranteed Student Loan Program was renamed "The Stafford Loan Program" in 1988 — after college loan champion and former U.S. Senator (and Vermont governor) Robert T. Stafford (1913-2006).