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Your school may be able to process your application for a Stafford Loan with
borrowed funds coming straight from the federal government. This is typically
known as a Direct Stafford Loan. Another approach is to apply with a third-party
lender (bank, credit union, etc.) which makes its own loans but is protected
from loss through guarantees from the federal government. This alternative is
known as a FFELP Stafford Loan. (FFELP stands for the Federal Family Education
Loan Program). Both types of Stafford Loans carry the same interest rate and
have similar characteristics. You will be required to pay as much as 4% of the
loan amount in processing and guaranty fees. These fees are typically deducted
from the loan disbursement. With either the FFELP or Direct Stafford Loan, you
are required to submit a FAFSA prior to making application for the loan. Loan
proceeds are paid directly to your school from the lender or federal government.
Your school will apply the funds to your tuition account, with any excess applied
to other expenses, retained as a credit on your account, or refunded to you.
The repayment period can be as many as 10 years, not including periods of deferment
or forbearance. Your borrowing limit with a Stafford Loan depends on which year
you are in at college, and whether you are considered a "dependent" student
or "independent" student under criteria established by federal law and the school's
financial aid office. (If your parents are turned down for a Federal PLUS Loan,
you are automatically considered independent).
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