What is a Federal Stafford Loan?

Stafford Loans are simply another name for Federal Direct Loans, which are offered directly to borrowers from the federal government. They come in two varieties—subsidized and unsubsidized—and are available to both undergraduate, graduate, and professional student borrowers. Loan terms vary depending on what level of education you are seeking.

Why are there two names?

When the Higher Education Act of 1965 was passed into law, it was intended to perform a number of duties designed to strengthen the education system in America and make higher education more attainable to more people. One of the most consequential impacts of the law was the creation of a variety of financial aid options for students, including a guaranteed federal student loan program called the Federal Family Education Loan Program (FFELP).

Under the FFELP, private lenders made loans to college students and their parents. These loans were subsidized by the federal government in order to keep interest rates low (for the borrowers) and manage risk (for the lenders) in case of default. In 1988, these loans were renamed Federal Stafford Loans in honor of former U.S. Senator Robert Stafford, who dedicated much of his political career to advancing higher education.

In 2010, in an attempt to reduce the government’s cost of lending, the decision was made to end the FFEL Program. Instead of the federal government subsidizing private lenders, they would instead lend money directly to the borrower. As such, the FFEL Program was ended and replaced by the William D. Ford Federal Direct Loan Program. At that time, the “official” name of the loans were changed from Federal Stafford Loans to Federal Direct Loans.

Despite this name change, some people still refer to Direct Loans as Stafford Loans. Regardless of what they’re called, both names refer to the same kind of loan. There is no difference between Stafford Loans and Direct Loans.

How do Federal Stafford Loans/Direct Loans work?

Federal Stafford Loans are offered directly to the borrower by the federal government and come in two varieties: subsidized and unsubsidized.

With Subsidized Stafford Loans, the federal government covers any interest that accrues on the principal when you are enrolled at least half-time as a student, when your loan is in its six-month grace period, or when the loan is placed in deferment. With Unsubsidized Stafford Loans, the borrower is responsible for all of the interest that accrues on the loan.

Subsidized Stafford Loans are only available to undergraduate college students who demonstrate significant financial need according to their FAFSA application. Unsubsidized Stafford Loans, on the other hand, are available to undergraduate, graduate, and professional students—regardless of financial need.

How do you apply for a Stafford Loan?

Applying for a Federal Stafford Loan is relatively straightforward. By completing the Free Application for Federal Student Aid (FAFSA), you will automatically apply to receive any federal financial aid that you are eligible to receive, including Subsidized and Unsubsidized Stafford Loans.

Generally, the process will look something like this:

  • Complete the FAFSA during your senior year of high school (or year before attending college). All other years, you will submit the Renewal FAFSA.

  • Await your financial aid package, which will be sent to you from your university’s financial aid office and which will detail any financial aid that you are eligible to receive.

  • Notify your university as to which financial aid you would like to accept.

  • Finalize acceptance by signing the required paperwork, including a Master Promissory Note.

Interest Rates

The interest rate carried by Federal Stafford Loans is set by Congress. The exact interest rate varies depending on when the loan was disbursed, as well as what level of education you are seeking.

For example, undergraduate students borrowing either Subsidized or Unsubsidized Stafford Loans disbursed on or after July 1, 2019 and before July 1, 2020 will carry a 4.53 percent interest rate. Graduate and professional students borrowing Unsubsidized Stafford Loans (they are not eligible for subsidized loans) will carry an interest rate of 6.08 percent.


Both Subsidized and Unsubsidized Stafford Loans require borrowers to pay a fee, which will be accessed upon disbursement of the funds. The fee is a percentage of the total loan amount. Exactly what fee you can expect to pay on your loan will depend on when it was first disbursed:

Before October 1, 2018: Varies by year

On or after Oct. 1, 2018, and before Oct. 1, 2019: 1.062 percent

On or after Oct. 1, 2019, and before Oct. 1, 2020: 1.059 percent

Maximum Borrowing Limits

How much funding you can borrow in Stafford Loans will depend upon a number of factors, including your status as either a dependent or independent student as well as which year of your education you are entering.

Dependent undergraduate students can borrow a total of $31,000 in Stafford Loans. No more than $23,000 of this may be in subsidized loans. Each year, they can borrow:

  • $5,500 their first year ($3,500 max in subsidized loans)

  • $6,500 their second year ($4,500 max in subsidized loans)

  • $7,500 their third year and beyond ($5,500 max in subsidized loans)

Independent undergraduate students can borrow a maximum of $57,500 in Stafford Loans. No more than $23,000 of this may be in subsidized loans. Each year, they can borrow:

  • $9,500 their first year ($3,500 max in subsidized loans)

  • $10,500 their second year ($4,500 max in subsidized loans)

  • $12,500 their third year and beyond ($5,500 max in subsidized loans)

Graduate and professional students can borrow a maximum of $138,500 in Stafford Loans, between both their undergraduate and graduate educations. (This is called the aggregate limit.) Each year of graduate school, they can borrow up to $20,500 in unsubsidized loans.

What else should I know about Stafford Loans?

Like other types of federal student loans, Stafford Loans come with a number of other important features which borrowers should seek to understand. Some of the most important of these are a variety of repayment options, possibility for forgiveness, and the ability to place loans into deferment or forbearance during a period of economic trouble.

Are there alternatives to Stafford Loans?

In the past, college students who needed additional funding in addition to Stafford Loans could potentially turn to other federal student loan programs to fill the gaps—for example, Perkins Loans, which carried a fixed interest rate of 5 percent and were available to borrowers who demonstrated exceptional financial need.

Unfortunately, the program that made Perkins Loans available failed to renew in Congress in 2017, and it has since ended.

Beyond Stafford/Direct Loans, borrowers who need additional funding to afford their college education may need to turn to private student loans. It is important to note, though, that private student loans will typically carry interest rates that are much higher than what is offered on federal student loans. Private student loans also typically come with fewer repayment options and other borrower protections compared to federal loans.

This article contains the current opinions of the author, but not necessarily those of Acorns. Such opinions are subject to change without notice. This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.