A Stafford loan is a federal student loan that was issued under the Federal Family Education Loan Program (FFELP), which ended in July 2010. If you hear the term today, the person is almost certainly referring to a Direct Subsidized or Direct Unsubsidized Loan, which replaced Stafford loans and work similarly. The name stuck in everyday conversation, but the loans themselves are now part of the Federal Direct Loan Program, where the U.S. Department of Education lends to you directly rather than through a private bank.
Why the Name Still Comes Up
Before 2010, federal student loans came through two channels. Under the FFELP, private lenders issued Stafford loans that were backed by the federal government. Under the Direct Loan Program, the Department of Education issued loans itself. Congress ended FFELP in 2010, making Direct Loans the only option for new federal borrowing. The Consumer Financial Protection Bureau notes that Stafford loans and Direct loans are technically not the same thing, but schools and families still use “Stafford” as shorthand. If your school’s financial aid office mentions a Stafford loan, they mean a Direct Subsidized or Direct Unsubsidized Loan.
Subsidized vs. Unsubsidized Loans
The two types of Direct loans that replaced Stafford loans differ in one major way: who pays the interest while you’re in school.
Direct Subsidized Loans are available only to undergraduate students who demonstrate financial need. The government pays your interest while you’re enrolled at least half-time, during the six-month grace period after you leave school, and during any approved deferment. This means your balance stays the same while you’re studying, which can save you thousands of dollars over the life of the loan.
Direct Unsubsidized Loans are open to undergraduates, graduate students, and professional degree students regardless of financial need. You’re responsible for interest from the day the loan is disbursed. If you don’t make interest payments while you’re in school or during deferment, that interest accrues and can capitalize, meaning it gets added to your principal balance. You then owe interest on a larger amount going forward.
Both types carry a fixed interest rate that lasts the life of the loan. For loans first disbursed between July 1, 2025, and June 30, 2026, the rate is 6.39% for undergraduate borrowers. Graduate and professional students borrowing unsubsidized loans pay 7.94%.
Loan Fees and How They Work
Federal student loans come with an origination fee that’s deducted from your disbursement before the money reaches you. For Direct Subsidized and Unsubsidized Loans disbursed between October 1, 2020, and October 1, 2026, the fee is 1.057%. On a $5,000 loan, that means roughly $53 is withheld, so you’d receive about $4,947, but you still owe the full $5,000. It’s a small cost relative to what private lenders typically charge, but worth knowing so the disbursement amount doesn’t catch you off guard.
How Much You Can Borrow
Annual and total borrowing limits depend on your year in school and whether you’re classified as a dependent or independent student. The limits apply to a combination of subsidized and unsubsidized borrowing. As a general framework:
- First-year undergraduates: can borrow up to $5,500 per year if dependent, with no more than $3,500 of that in subsidized loans.
- Second-year undergraduates: limits rise to $6,500, with up to $4,500 subsidized.
- Third-year and beyond: the cap is $7,500, with up to $5,500 subsidized.
- Independent undergraduates: can borrow significantly more in unsubsidized loans on top of the subsidized amounts.
- Graduate and professional students: can borrow up to $20,500 per year in unsubsidized loans (subsidized loans are not available to graduate students).
There are also aggregate (lifetime) caps. Dependent undergraduates can borrow up to $31,000 total, with no more than $23,000 of that subsidized. Independent undergraduates max out at $57,500. Graduate students have an aggregate limit of $138,500, which includes any loans from their undergraduate years.
How to Apply
You apply by completing the Free Application for Federal Student Aid, known as the FAFSA. The form collects information about your family’s income and expenses to calculate your expected financial contribution. Your school uses that calculation to determine how much aid you qualify for, including whether you’re eligible for subsidized loans based on financial need.
You must be enrolled or accepted for enrollment in a degree or certificate program at least half-time. You also need to be a U.S. citizen or eligible noncitizen, and male students between 18 and 25 must be registered with the Selective Service. Your school’s financial aid office will send you an award letter showing how much you can borrow. You then decide whether to accept the full amount or a smaller portion.
Repayment and Grace Period
After you graduate, leave school, or drop below half-time enrollment, you get a six-month grace period before payments begin. During that window, subsidized loans continue to have their interest covered by the government. Unsubsidized loans keep accruing interest, so making payments during the grace period (even small ones toward interest) can reduce your total cost.
Once repayment starts, you’ll be placed on the Standard Repayment Plan by default, which spreads payments over 10 years. You can switch to income-driven repayment plans that cap monthly payments at a percentage of your discretionary income, or to graduated or extended plans if you need lower payments early on. All federal Direct loans are eligible for Public Service Loan Forgiveness if you work for a qualifying employer and make 120 qualifying payments.
If You Still Have an Actual Stafford Loan
Borrowers who took out FFELP Stafford loans before July 2010 may still be repaying them. These loans are serviced by private lenders rather than the federal government’s loan servicers, and they don’t automatically qualify for all the same repayment and forgiveness programs as Direct loans. If you hold old Stafford loans and want access to income-driven repayment or Public Service Loan Forgiveness, you can consolidate them into a Direct Consolidation Loan through the federal program. Consolidation doesn’t lower your interest rate (it averages your existing rates, rounded up to the nearest one-eighth of a percent), but it opens the door to federal repayment benefits that FFELP loans don’t offer on their own.