Stafford Loans are federal loans given to college students for undergraduate studies. If they are subsidized, the federal government pays the interest payments until the student leaves school. If the loan is unsubsidized, the interest accumulates and is tacked onto the loan payment after the student leaves school.
To qualify for a federal Stafford Loan you must file a FAFSA application, be at least a half-time student, and demonstrate financial need. Qualification for financial need varies and is determined by the Department of Education and the costs of the college you are attending.
The amount you can borrow changes from year to year. As a first-year student you can borrow up to $3,500. During your sophomore year, you can borrow up to $4,500. For both your junior and senior years, you can borrow up to $5,500.
The good news is that The College Cost Reduction and Access Act of 2007 was designed to lower the interest rates on these federal loans over the course of several years, through July 2012. Although the original intent was to cut the interest rate in half, the program has been scaled back. However, you can still save thousands with the presently scheduled interest rate cuts.
The interest rates on loans given in the 2009-10 school year are set at a 5.6% interest rate. For the year 2010-11 the rate will be lowered to 4.5%, and for 2011-12 the rate will be cut to 3.4%.
After 2012, the rate is expected to go back up to 6.8%, although Congress may decide to make the rate variable with a 6.8% cap.