Everything You Need to Know About the Stafford Student Loan Program

Sep 24, 2022 By Susan Kelly


U.S. Department of Education Stafford Loans were available to qualified undergraduate and graduate students studying at U.S. colleges and universities that had been granted institutional accreditation. If a student fails to make their loan payments, the lender will be repaid according to the provisions outlined in Title IV of the Higher Education Act of 1965 (and subsequent changes). William D. Ford Federal Direct Student Loan Program has replaced the Stafford Loan program as of July 1, 2010.

In 1988, Congress recognized Republican U.S. Senator Robert Stafford of Vermont for his contributions to higher education by renaming the Federal Guaranteed Student Loan program the Robert T. Stafford Student Loan program. Stafford loans were issued at a lower interest rate than the borrower would have been able to acquire for a private loan, and they were backed by the complete faith of the United States government. But Stafford Loans were not available to everyone and had a maximum amount that could be borrowed.

How a Stafford Loan Works

It's possible to get interested in federally guaranteed student loans paid for by the government (subsidized Stafford loans or direct subsidized loans) or not (unsubsidized loans) (unsubsidized Stafford loans or direct unsubsidized loans). Financial need is considered solely for undergraduates to receive direct subsidized loans. However, graduate students and undergraduates are both eligible for direct unsubsidized loans.

Students in their first year of college can borrow up to $3,000; those in their second year can borrow up to $4,000; those in their third year can borrow up to $5,000, and those in their fourth or fifth year can borrow up to $5,500. How much a student can borrow is also impacted by their dependent status.

Direct Stafford Loan Types

Subsidized Loan

Your eligibility for a discounted loan is based on the information you provide on the Free Application for Federal Student Aid (FAFSA) (FAFSA). Interest on a subsidized Stafford loan will be waived while you are enrolled in school at least half-time, for up to six months after you drop below "half-time" status, and during certain defined deferment periods. During these times, the federal government foots the bill for interest.

Unsubsidized Loan

When it comes to receiving an unsubsidized loan, financial need is not considered. But the FAFSA application is required anyway. Interest begins accruing on unsubsidized loans the moment they are disbursed and does not stop accruing until they are paid in full. Interest payments are not required while a student is enrolled in school or during a grace period or deferral term. However, if interest is allowed to accrue (accumulate) during these times, it will be capitalized. All accrued interest will be tacked onto your loan's main balance, and all future interest payments will be calculated using the new, higher balance.

How Much Money Can I Borrow in Federal Student Loans?

Types of Aid

Borrowing limits for federal student loans vary by loan type and enrollment status (undergraduate or graduate). There are annual and aggregate loan limits for both Direct Subsidized and Direct Unsubsidized Loans, depending on whether you are an undergraduate or graduate student (aggregate loan limits). The maximum amount you can borrow each year for school depends on your year in school, your dependency status, and your ability to repay loans (your dependency status). Your actual loan eligibility may be less than the maximum loan amount for the academic year.

Summary of Recent Requirements and Initiatives

For the first time, the FFEL Program was modified by law in two important ways for the 1994-1995 school year. Significant changes were made to the FFEL Program, and conditions were established for implementing the Federal Direct Student Loan (FDSL) Program due to the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66), often known as the Student Loan Reform Act. The FFEL Program also underwent substantial revisions due to the Higher Education Technical Amendments of 1993 (P.L. 103-208), which aimed to clarify and broaden some sections of the Higher Education Amendments of 1992. The U.S. Department of Education (the Department) established several rules to execute the provisions of these statutes. All references to regulations in this chapter are to the Federal Register Final Rules, and their publication dates and names are included wherever applicable.


The many issues plaguing the Stafford Loan Program are summed up here, along with an explanation of why significant changes have not been made to the program. The goal is not to find answers but to assess the program's achievements and shortcomings while demonstrating the political complexity involved in addressing its core issues.

Related Articles