A Federal Stafford loan is a simple interest loan. Its rate is capped at 8.25% for undergraduate students and 9.5% for graduate/professional students. There are two types of Stafford loans: subsidized and unsubsidized.
A subsidized Stafford loan is a need-based loan. The government pays the interest on the loan while the borrower is in school and for six months following graduation.
An unsubsidized loan is a need-based loan for which the borrower pays the interest. The borrower can pay the interest while still in school or defer payments until after graduation.
A PLUS loan is a simple interest loan with an interest rate cap of 10.5%. It’s not based on need. Repayment begins 60 days after the loan has been fully disbursed.
Tax deductions are available for interest on loans used exclusively for higher education expenses. You can deduct all or part of the interest on Stafford loans for yourself or PLUS loans for your dependents. Be sure to consult a tax professional who is up to date on the current rules for taking such deductions. They can change from year to year.
To apply for a student loan, you’ll need a Free Application for Federal Student Aid (FAFSA). It’s available online at www.fafsa.ed.gov. If you need a paper copy, you can download a PDF at www.studentaid.ed.gov/PDFfafsa.
FAFSAs are accepted and processed after January 1 of each year a student is planning to attend school. File as soon after January 1 as you can. The later you file, the worse your chances are of getting a loan or a grant.
Once your FAFSA’s been processed, you’ll receive an award letter from your school summarizing the financial aid available to you. For Stafford loans, the school will either include a Master Promissory Note with the award letter or instruct you to get one from a lender. You can also download one at www.fafsa.ed.gov.