Federal Stafford Loan: What to Watch Out For

The federal Stafford Loan is a need-based loan extended to students attending college at a school that participates in the Stafford loan program. Any student who applies for a Stafford loan fills out the Free Application for Federal Student Aid (FAFSA). However, as the loan is need-based, benefits will largely depend on the perceived need the student has for assistance in paying for college tuition. Needier students will see more benefits through the program including interest-free loan options. All students should be aware of several hidden problems with the loans.

Fees May Be Deducted from Total

It is not uncommon to receive less in loans than you were originally approved for. This is because the Stafford program takes out a portion of origination fees and default fees. The total amount of fees may not be disclosed to you until you receive the funding. Furthermore, the fees can mean you are left with a gap between the amount you need to pay for school and the amount you received through your loan. You will have to make up this fee on your own. Many students who are receiving this financial aid have to work during school in order to make up for the difference. 

Recurring Applications

Stafford loan limits and interest rates are set once a year. A student does not lock-in the loan for the entirety of their college stay. Rather, the student must reapply each year and be approved each year. The student must maintain at least a part-time status over the course of the years in order to continue to receive funding. It is not uncommon to qualify for an interest-free loan one year and be assessed 5% interest the next if your family's or individual ability to pay has gone up. This leaves students in a bad position.

Smaller Loans for Financially Capable Students

If the lenders believe you have the ability to pay for college, typically based on your Expected Family Contribution (EFC) you may not be able to qualify for the loan at all. You may also receive smaller loans and higher interest rates. You may still need financial aid for college, but this type of federal student loan will not assist you as much as it will a needy student. You will have to file as an independent to get the greatest rewards, and this means you can receive no help from your family whatsoever. 

No Living Expense Coverage

Stafford loans are in place to pay for tuition only. In some cases, they may also pay for additional education expenses but will not pay for living expenses. The cost of living alone, even on campus, is very high at most colleges. These means many students receiving these loans will have to work while attending school, often attending part time or struggling to make ends meet between classes and work. Furthermore, making too much money year-to-year can alter the terms of a loan that is need-based. It is better to save money for living expenses prior to accepting the loan.


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