More than 40 years ago now back in 1965 Congress established the Federal Family Education Loan Program in order to give financial assistance to students. One part of this program is Stafford loans which were originally intended to assist only students in very real financial need but which today represent over 90% of all Federal Government education loans.
Over the years Stafford loans have evolved to take account of changing conditions and today there are two main forms of the loan - subsidized and unsubsidized Stafford loans.
In the case of subsidized loans the Government accepts responsibility for paying interest which accrues on a loan from the date on which the loan is issued until the student is required to begin making repayments. Generally a student will not have to make repayments while he remains enrolled on a program of study which is classed as being a 'half-time' or greater program and for a period of up to six months following the conclusion of his course. A student can however begin making payments at an earlier point if he wants to do so.
Since interest is subsidized, loans are normally granted only on the basis of need and aid officials will consider both a student's and the family's income when deciding whether or not the student qualifies for a subsidized Stafford loan. Students are required to fill out a Free Application for Federal Student Aid application form which includes income details and the student will then be assigned a number referred to as the Expected Family Contribution calculated from the income figures provided.
About two-thirds of subsidized Stafford loans are provided to students with parents having an Adjusted Gross Income of less than $50,000 per year. Another one-quarter of subsidized loans are granted to those in the $50-100,000 per year range. After this the meaning of the term 'need' becomes a little fuzzy and slightly under one-tenth of subsidized loans are granted to students with a combined family income of greater than $100,000.
For students who do not meet the requirements for a subsidized loan the majority will be eligible for an unsubsidized Stafford loan. Here the major difference is that students have got to meet all loan interest payments, although once again payment do not generally begin until six months after the completion of the student's course.
An unsubsidized Stafford loan can be quite expensive as interest builds during the period of study and so the capital sum on which repayment will eventually need to be made will also increase. Let's consider a very simplified example.
Let's assume that a student borrows the sum of $5,000 in his first year at an interest rate of 6.8%. At the end of the year the interest due is $340 and this will be added to the loan capital. During the next year the student will accrue interest on $5,340 at 6.8% and this will amount to roughly $363 increasing the total borrowed after two years to $5,703. Naturally this example is not entirely accurate as interest is in fact calculated and added on a monthly basis but it does nonetheless demonstrate the principles of this type of loan.
Dependent upon the sum of money which is borrowed every year and the length of time before repayment begins it can be seen that a student can pay a relatively high price for the benefit of delaying the repayment of this form of education loan.
Despite this ostensibly high cost it must be borne in mind that many of the alternative methods for meeting the cost of a college education can be much more expensive and that many students could not afford to attend college without the Stafford loans scheme.
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