The Federal Stafford loan is a low-cost, fixed-rate federal student loan available to graduate and professional school students, not just undergraduate students. Federal Stafford loans are the most common — and among the lowest-cost — ways to pay for graduate and professional school.
As of July 1, 2012, only unsubsidized Federal Stafford loans are available to graduate students; however, subsidized Federal Stafford loans remain available to undergraduate students.
The interest rate on the Federal Stafford loan for graduate and professional school students is 6.21% for the 2014-2015 academic year, with a loan fee of 1.073%. (From 2006-2007 to 2012-2013 the interest rate was 6.8%.) This is less expensive than the 7.21% interest rate on Federal Grad PLUS loans, which also has a 4.292% loan fee.
Graduate and professional school students may borrow up to $20,500 per year from the unsubsidized Federal Stafford loan. The cumulative loan limits are $138,500, including undergraduate debt (and no more than $65,500 in subsidized Federal Stafford loans).
Medical school and health professions students may borrow up to $40,500 per year and have a cumulative loan limit of up to $224,000.
On August 9, 2013 President Obama signed the Bipartisan Student Loan Certainty Act of 2013 (P.L. 113-28), changing how student loan interest rates are determined. The bill links interest rates on new federal education loans made on or after July 1, 2013 to the 10-year Treasury rate, plus a fixed margin. The interest rates on new loans are still fixed for the life of the loan; however, each year’s new loans will have different fixed rates, based on current market rates.
|Academic Year||Graduate and Professional|
Before 2006-2007, interest rates on Federal Stafford Loans were variable, with different rates depending on whether the borrower was in the in-school and grace periods or in the repayment period. (In 1993-1994 and earlier award years, the interest rates were the same for the in-school, grace and repayment periods.) Interest rates during the repayment period were 0.60% higher. Borrowers could lock in the current rate (rounded to the nearest 1/8th of a percentage point) by consolidating the loans. Interest rates were the same for undergraduate, graduate and professional students. Interest rates were also the same for subsidized and unsubsidized Federal Stafford Loans. The next table shows the variable interest rates on the Federal Stafford Loans in effect at the time the loans were disbursed.
|Academic Year||In-School and Grace Periods||Repayment Period|
Fees on Federal Stafford Loans are 1.073% for loans disbursed from 10/1/2014 to 9/30/2015 and 1.068% for loans disbursed from 10/1/2015 to 9/30/2016.
||Total Loan Fees|
|2015-2016 (10/1/15 - 9/30/16)||1.068%|
|2014-2015 (10/1/14 - 9/30/15)||1.073%|
|2014-2015 (7/1/14 - 9/30/14)||1.072%|
|2013-2014 (12/1/13 - 6/30/14)||1.072%|
|2013-2014 (7/1/13 - 11/30/13)||1.051%|
|2005-2006 and before||4.0%|
Loan disbursement and default fees are effectively a form of up-front interest. Assuming a 10-year repayment term, a 4% fee is the equivalent of an increase in the interest rate of about seven-eighths to one percentage point. Assuming a 30-year repayment term, a 4% fee is the equivalent of an increase in the interest rate of about one-third to half a percentage point. The relative impact of a fee is greater with a shorter repayment term or if the borrower prepays the loan, since the fee will be amortized over less time. This is why borrowers who plan to pay off a loan early may wish to avoid up-front fees, if possible.
Up to $2,500 total in interest on federal and private student loans may be deducted on the borrower’s federal income tax return each year. The deduction occurs as an above-the-line exclusion from income and so may be claimed even if the borrower doesn’t itemize deductions. This reduces the cost of the loan, the equivalent of a small reduction in the interest rate.
Unsubsidized Federal Stafford Loans are not based on demonstrated financial need. Any eligible graduate or professional school student can take out unsubsidized Federal Stafford loans, so long as they are enrolled on at least a half-time basis. Borrowers are charged interest from the time the loan is disbursed to the time the loan is repaid in full.
Graduate and professional students who have exhausted eligibility for the Federal Stafford Loan may borrow from the Federal Grad PLUS Loan, another low-cost, fixed-rate federal student loan.
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