Home > Students > A Beginner’s Guide to America’s Most Popular Student Loan

Comments 0 Comments

Student loans — can’t live with ‘em, but it seems most of us can’t live without them either. Higher education costs are on the rise and the cost and financing of your (or your child’s) college tuition can be tricky to navigate.

It’s a good idea to check out a student loan calculator to learn how much your monthly payments are or will be. It’s also important to do your research about all the different types of student loans. Let’s start things off by getting all the details of the federal government’s primary student loan option for undergraduates — the Stafford Loan. Whether you are a new grad just figuring out what you’ve gotten yourself into or a parent of a high school student trying to be prepared, here’s what you need to know.

Basics

The federal Stafford Loan is the most popular student loan program, offering a low origination fee as well as low, fixed interest rates. (For Stafford Loans disbursed in 2015-2016, the origination fee is about 1% and the interest rate is 4.29%.) Unlike other forms of loans and debts, the interest rate does not depend on the borrower’s income or credit score — it is the same for everyone. Stafford loans are meant to supplement existing personal and family resources for higher education, including any scholarships and grants. These funds can be used to cover the cost of tuition, room and board, books and other education-related expenses.

Eligibility

To qualify for these federal loans, you must be attending college at least half time and have filed a Free Application for Federal Student Aid (FAFSA). Further, there are two types of the Stafford Loan: subsidized and unsubsidized. The subsidized version is based on demonstrated financial need as exhibited on the FAFSA application.

Unsubsidized Stafford Loans are for those who are deemed not to have significant financial need. They are also available to graduate and professional students (with a limit of $138,500, including all federal loans received as an undergraduate student).

Both subsidized and unsubsidized Stafford Loans offer low fees and low rates compared to most private student loans. However, a great credit score could actually get you a lower rate on a private student loan, depending on the lender. You can see where your credit scores stand for free on Credit.com before you start shopping around.

Subsidized vs. Unsubsidized

There is a difference in the way interest accumulates on the subsidized loans compared to the unsubsidized. For the subsidized loan, the government will pay the interest on your loan until you finish school (as long as you are a student at least half-time) and during a six-month grace period once you leave school. With unsubsidized loans, interest accumulates and is added to the principal while you are in school (as well as during grace, deferment and forbearance periods). Federal loans offer multiple repayment options that private loan programs may not, helping borrowers with limited income get a more manageable monthly payment.

Drawbacks

One potential drawback of the Stafford Loan is that money is not given all at once, but is instead dependent upon yearly tuition and subject to change. There are also lower limits than in other loan programs. Of course, you will have to pay interest — which isn’t unique to the Stafford Loan but is never fun.

More on Student Loans:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team