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Pros and Cons of a Subsidized Stafford Loan

Updated on August 22, 2011

The Federal Stafford Loan

Funding your, or your child's college education can be a chilling task for those who are suddenly facing financing woes for the first time. Variable rates are the object of many financial horror stories. Thankfully, as of the 1st of July 2006, federal subsidized loans (as well as unsubsidized) have been converted into fixed-rate plans. Which greatly aid transparency and minimize repayment issues.

Despite the attractiveness of these offers, bear in mind that there are pros and cons, and acquiring one can be, to put it mildly, a little daunting on the bureaucratic side.

This article will explain the process from scratch. From eligibility to the characteristics of the loan itself, including repayment, consolidation and ultimately, financial freedom.

Subsidized Vs Unsubsidized Loans

In this article we will be dealing with direct subsidized loans,which differ from unsubsidized versions for the following reasons:

  • Subsidized loans require you to prove that you are in financial need. What this means is that your school of choice will review your FAFSA (hold still, more on this later!) application to determine how much financing you are eligible for. If you enroll at the very least as a half-time student, then you will not be charged any interest whatsoever (which equates just about everyone).
  • Direct unsubsidized loans do not require any financial prerequisites, save those related to general eligibility (below). Unlike subsidized loans, interest will accrue if you choose not to pay the interest. If you choose not to pay in a timely manner, bear in mind that you will ultimately pay a greater price because of the high principal total that will tally-up.

FAFSA & Eligibility

The first step to getting your loan is filling out the web-based FAFSA application form. The FAFSA, or Free Application for Student Aid, is a form used by the U.S. Department of Education to determine your financial need status. The resulting information is sorted and then transmitted to the financial aid offices of your college of choice.

The biggest cons relating to receiving a student loan can be found in meeting the FAFSA's eligibility. In order to successfully apply you will need to:

  • Be a U.S citizen, a national or a legal non-citizen
  • Must have a GED or high school diploma
  • Registered with the United States Selective Service (18-25)
  • You must sign that you agree to use the FAFSA finances for educational purposes only
  • Are not defaulting on any current student loans
  • Have not been found guilty of drug related charges during the time you received financial aid.

Additional Subsidized stafford loan requirements are:

  • You must be enrolled at least as a part-time student
  • Your school must determine that you have financial need

Got all that?

Take a deep breath, that hard part is over :)
Take a deep breath, that hard part is over :)

More Good News

Stafford Loans do not require you to pay anything while enrolled. Direct subsidized loans also have no interest, if your school accepts your claim for financial need. 

Stafford Loan Rates

Subsidized Stafford loans are fixed rate student loans. Which is great news, as anyone who has ever felt the backstabbing whip of compound interest will tell you. If you noticed the momentary surging of anger, well, I'm trying my best to quell it :)

For the academic year of 2010, all the way to 2013, Stafford loans have a fixed interest rate of 6.8%.

Stafford Loan Repayment and Forgiveness

Before you begin repayment it is advisable to check whether you can benefit from any stafford loan consolidation plans which can drastically reduce payments.

Secondly, know that there are some avenues that will end in loan forgiveness. These routes are often non-profit volunteer community work (medical or teaching) or being a member of the U.S armed forces.

When it comes down to repayment, every person will have a tailored schedule based on how much they were granted. One swift way to efficiently calculate the amount due is to use the tool to the right. 


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    • daskittlez69 profile image

      daskittlez69 6 years ago from midwest

      Great hub! I wished I could have read this back in the day when I went away to college. Here's your up!

    • thooghun profile image

      James D. Preston 7 years ago from Rome, Italy

      Thanks for the tips guys, I will incorporate them.

    • dallas93444 profile image

      Dallas W Thompson 7 years ago from Bakersfield, CA

      msorensson comments is great. Also, bankruptcy does not erase loan. Must not borrow more than you can repay...

    • msorensson profile image

      msorensson 7 years ago

      Well done. You may want to include that the paperwork is massive and needs to get done at least two months in advance and that government loans will stay in their credit record they cannot skip paying it.