What is the Policy for Canceling a Stafford Loan?

A Stafford Loan is a federal student loan with a number of financial benefits. These benefits include relatively low interest rates, fixed interest rates, easy refinancing, and the opportunity to cancel a loan that is no longer needed. If you wish to cancel your loan, be aware of the time restrictions placed on this.

Loans Direct to School

The first thing to understand about Stafford Loans is the way the funds are delivered directly to your college or university. You will never receive the funds into your bank account. Instead, they will be paid directly to the finance department of your school of choice. This explains why the loans cannot be used to cover living expenses or even expenses like books and dining plans. The loans only cover the cost of tuition. Since tuition varies semester by semester depending on your course load, you will apply for a Stafford Loan each semester. The funds will be delivered directly to your account at the school, and the school will notify you when they are received.

Time Line for Cancellation

The school must notify you in writing when it receives your loan funds and credits your account. This notification, by law, must be sent within 30 days of the credit. This can be 30 days before or 30 days after, which is an important distinction. You will have to inform your school of cancellation within 14 days, or two weeks, after receiving your notification. This is the same whether you are notified before or after funds have been deposited into your account. You may also cancel your loan in full or in part by the first day of the payment period. You have until whichever is later, 14 days from notification or the first day of the payment period, to cancel the loan. 

Missing a Cancellation Deadline

If you miss a cancellation deadline, there is nothing you can do to cancel your loan for that term. You will owe the loan back to the government through regular payments. This can be unfortunate if you are no longer attending the school this term. As such, it is critical to be aware of your payment periods and keep watch for the notification. Since you are working with the government and not a private lender, it is not common to receive any exception or bending of the rules. The government is not as flexible as most private service providers.

When to Cancel a Stafford Loan

Borrowers typically cancel Stafford Loans when they are not attending school for the term they applied for. This can occur when a student takes time off, transfers, or is taking a reduced number of credits. Once you cancel your Stafford Loan to a college or university, you may have to go through more steps to start receiving the funds again in another term in the future. Since Stafford Loans require applications each term, however, the additional hassle should not be much more than you were initially expecting. It is better to simply stay with the loan for the identified terms if you know you will not need it.

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