The Stafford Loan is a federal student loan that is given to students enrolled in a qualified post-secondary institution.  The institution must be an accredited American Institution in order for a prospective student to qualify for a Federal Stafford Loan.  Students may qualify for two different forms of the Stafford Loan, either the Subsidized or Unsubsidized Stafford Student Loan. 

The Subsidized Stafford Student Loan is awarded on the basis of financial need. If you're eligible for a subsidized loan, the government will pay (subsidize) the interest on your loan while you're in school, for the first six months after you leave school, and if you qualify to have your payments deferred. Depending on your financial need, you may borrow subsidized money for an amount up to the annual loan borrowing limit for your level of study.

The Unsubsidized Stafford Loan is a loan that is not based on financial need.  Your school will subtract the total amount of your other financial aid from your cost of attendance to determine whether you're eligible for an unsubsidized loan.  Students are responsible for the interest from the time the unsubsidized loan is disbursed until it is paid in full.  Students have the opportunity to choose to pay the interest or allow it to accrue or accumulate while in school.

All unsubsidized Stafford Loans first disbursed on or after July 1, 2006, the interest rate is fixed at 6.8 percent. The interest rate for subsidized Stafford loans first disbursed on or after July 1, 2008 is fixed at 6.0 percent. This change from a variable to a fixed interest rate does not affect a borrower's variable interest rate on loans made before July 1, 2006.

Stafford Loans first disbursed between July 1, 1998 and June 30, 2006 will have an interest rate that is variable (adjusted annually on July 1st) and will not exceed 8.25 percent. Borrowers will be notified any time the variable rate change.  The interest rate for these loans in 2008-09 is 4.21. These rates apply to loans in repayment status; the rate may be lower during grace and deferment periods.

On July 1 2009, the interest rate for new subsidized Stafford loans for undergraduate students will drop to 5.6% from the current rate of 6%. This rate, which applies to loans issued between July 1 and June 30, 2010, will remain in effect for the life of the loan.

Below shows the interest rate breakdown for the Subsidized and Unsubsidized Loans:

Fixed Rates for Loans First Disbursed on or After July 1, 2006

Variable Rates for Loans First Disbursed Between July 1, 1998 and June 30, 2006

These rates were calculated based upon statutory formulas and equal the bond equivalent rate of the 91-day Treasury bills auctioned on May 27, 2008, plus certain statutory percentage add-ons. The 91-day Treasury bills were auctioned at 1.905 percent, rounded to 1.91 percent.