Comparing Direct Student Loans and Federal Stafford Loans

A direct student loan is money borrowed by a student or a student's parent from the United States Department of Education in order to fund post-secondary schooling. A Federal Stafford Loan is money borrowed by a student or a student's parent from either the United States Department of Education or another lending company in order to fund post-secondary schooling. Although the two serve the same purpose, the differences between them cause people to consciously choose one over the other.

Loan Application

Both types of loan require students to submit a Free Application for Federal Student Aid (FAFSA). This application can be found online and can be submitted electronically. The FAFSA determines financial need by subtracting Expected Family Contribution (EFC) from the cost of attendance at a college.  This is important because it determines what type of loan you will be eligible for. There are two basic types of Stafford and direct student loans. These are subsidized and unsubsidized loans. Subsidized loans are for people who demonstrate financial need. The government pays interest while a borrower is in school at least half time. Unsubsidized loans are for people who cannot demonstrate financial need but still want to borrow money.

Loan Program

Direct student loans are administered by the direct student loan program. Stafford loans are administered by the Federal Family Education Loan (FFEL) program. More schools, and more students, accept and borrow from the Federal Family Education Loan program than they do from the Direct Student Loan Program. 

Direct Lending

Direct student loans are lent from the Department of Education. There is no other source of direct student loans. Because of this, direct student loans cannot be sold. The borrower always knows exactly who owns his/her loan. Stafford loans can be supplied by the federal government or by other companies. Some companies that supply Stafford loans are Wachovia and the Bank of America. Because of this, Stafford loans can be sold and bought between many companies. The borrower may not know exactly who owns his/her loan. Interest rates on direct student loans are lower than those on federal Stafford loans.   

Loan Repayment

If you want a repayment schedule that is contingent on your income, you must choose a direct student loan. With direct student loans, you can also choose a standard, fixed, regular monthly repayment plan or a graduated, increasing, monthly repayment plan. Federal Stafford loans do not over true income contingent repayment plans. Both types of loans do not require repayment while a person is in school at least half-time.




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