Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Federal Family Education Loan Programs: Federal Stafford Loans, Federal PLUS, and Federal Consolidation Loan Programs - Unsubsidized Federal Stafford Loans

AwardYear: 1996-1997
EnterChapterNo: 10
EnterChapterTitle: Federal Family Education Loan Programs: Federal Stafford Loans, Federal PLUS, and Federal Consolidation Loan Programs
SectionNumber: 3
SectionTitle: Unsubsidized Federal Stafford Loans
PageNumbers: 33-36



A borrower unable to qualify for a need-based Federal Stafford Loan
may always apply for an unsubsidized Stafford Loan--a loan that
does not qualify for a federal interest subsidy. The Higher Education
Amendments of 1992 added specific provisions for an unsubsidized
Stafford Loan Program for borrowers who do not qualify for a
subsidized Stafford Loan or who, based on need analysis, qualify for
only a part of their subsidized Stafford Loan limit. A borrower must
have his or her eligibility for a subsidized Stafford Loan determined
before he or she may borrow an unsubsidized Stafford Loan. Under
the Higher Education Amendments of 1992 provisions, a borrower
meeting the student eligibility requirements for a FFEL may borrow
an unsubsidized Stafford Loan. A single application form and a
single repayment schedule may be used for both unsubsidized and
subsidized Stafford Loans. (See Section 7 for more information on
the loan application process.)

Changes to the Stafford Loan Program that affect both subsidized
and unsubsidized Stafford Loans are discussed in Section 2.

As mentioned in the introduction to this chapter, the Omnibus
Budget Reconciliation Act of 1993 eliminated the Federal
Supplemental Loans for Students (SLS) program as a separate
program. Effective July 1, 1994, the SLS was repealed. The SLS
program was merged into the unsubsidized Stafford Loan Program.
Therefore, unsubsidized Stafford Loans made for periods of
enrollment BEFORE July 1, 1994 may have benefits and conditions
different from unsubsidized Stafford Loans made AFTER that date;
pre-July 1, 1994 loans will retain those different conditions and
benefits. Changes to unsubsidized Stafford Loans as the result of
legislation will be explained in this section.

If, due to circumstances such as an adverse credit history, a
dependent undergraduate student’s parents are unable to borrow a
Federal PLUS, the student will be allowed the loan limits applicable
to independent students under the unsubsidized Stafford Loan
program.

STAFFORD LOAN LIMITS

Loan limits for unsubsidized Stafford Loans MADE TO A
DEPENDENT UNDERGRADUATE STUDENT are the same as
those for subsidized Stafford Loans. A dependent undergraduate
student who takes out both subsidized and unsubsidized Stafford
Loans must not exceed the annual and aggregate limits allowed
under the Stafford Loan Program. The unsubsidized Stafford Loan
amount, subject to the loan limits described above, is the difference
between the borrower’s cost of attendance for the loan period in
question and the borrower’s estimated financial assistance (including
a subsidized Stafford Loan, if the borrower qualifies for one). This
example shows how to determine an unsubsidized Stafford Loan for
a dependent undergraduate student.

Michael, a first-year student at State U. who has a dependent
student status, applies for a Stafford Loan to attend a school term
beginning in September 1996. His cost of attendance is $8,000,
and he qualifies for a subsidized Stafford Loan of $1,000. He may
apply for an unsubsidized Stafford Loan of $1,625, which is the
difference between the maximum Stafford Loan allowed him
($2,625) and the amount of his subsidized Stafford. (His parents
may borrow a PLUS to cover the remainder of his cost of
attendance.)

[[Loan limits for independent undergrads]]
Following are loan limits for unsubsidized Stafford Loans first
disbursed on or after July 1, 1994 and made to INDEPENDENT
UNDERGRADUATE STUDENTS (or to dependent students whose
parents are unable to borrow a PLUS). THE FOLLOWING
UNSUBSIDIZED STAFFORD LOAN LIMITS MAY BE ADDED
TO THE BORROWER’S SUBSIDIZED STAFFORD LOAN
LIMITS.

- For a student who has not completed the first two years of
undergraduate study, loan limits are

- up to $4,000 for a program of study at least an academic year in
length;

- up to $2,500 for a program at least two-thirds of an academic
year but less than a full year;

- up to $1,500 for a program at least one-third of an academic year
but less than two-thirds of an academic year.

- For a student who has completed the first and second years but
who has not completed the remainder of the program, the loan
limit is

- up to $5,000 for a program of study at least an academic year in
length;

- the loan must be prorated for programs less than an academic
year in length or for programs more than an academic year when
the remaining portion of the program in excess of an academic
year is less than an academic year in length.

Here is an example of how to determine the amount of an
unsubsidized Stafford Loan for an independent undergraduate
student.

Mary is a first-year independent undergraduate student at
Community U. whose cost of attendance is $7,000 per academic
year. She qualifies for a subsidized Stafford Loan of $1,500. Mary
may apply for an unsubsidized Stafford Loan of $5,125 ($1,125
remaining under her Stafford Loan limit, plus a $4,000 maximum
unsubsidized Stafford Loan). Her total loan limit for her
subsidized Stafford Loan and her unsubsidized Stafford Loan
is $6,625.

[[Loan limits for grad students]]
GRADUATE OR PROFESSIONAL STUDENTS with unsubsidized
Stafford Loans first disbursed on or after July 1, 1994 may borrow
up to $10,000 per academic year, in addition to the amounts
borrowed under the subsidized Stafford Loan program.

[[Aggregate loan limits]]
The aggregate limit for subsidized and unsubsidized Stafford Loans
is $23,000 for a dependent undergraduate student, $46,000 for an
independent student and $138,500 ($65,500 subsidized and $73,000
unsubsidized) for a graduate or professional student (including loans
for undergraduate study).

An unsubsidized Stafford Loan may be used to offset the borrower’s
Expected Family Contribution (EFC). (See Section 7 for more on the
EFC.)

INTEREST RATES AND GRACE PERIODS

Generally, interest rates and grace periods for unsubsidized Stafford
Loans are the same as those for subsidized Stafford Loans. However,
only loan principal is deferred for these loans; payment of interest for
an unsubsidized Stafford Loan must be made during the in-school
period, the grace period, and during periods of deferment. Or,
interest may be allowed to accrue and be capitalized (no more
frequently than quarterly) and added to the loan principal when
repayment begins, thus increasing the principal.

As with subsidized Stafford Loans, unsubsidized Stafford Loans
disbursed on or after July 1, 1994 have a variable interest rate, as
explained under "Interest rates and grace periods" in Section 2.

ADDITIONAL COSTS OF BORROWING

The combined origination fee and insurance premium was renamed
the "origination fee" and the amount has been reduced to 3% of the
loan principal. The cost is deducted proportionately from each
disbursement of the loan.

Also, the guaranty agency may charge the lender an insurance
premium not to exceed 1% of the loan principal. If the lender passes
this charge on to the borrower, the fee must be deducted
proportionately from each disbursement of the loan.

REPAYMENT

Repayment of an unsubsidized Stafford Loan begins the day after the
expiration of the six-month grace period. For loans first disbursed on
or after July 1, 1994, the repayment period begins on the date the
first payment of principal is due from the borrower. (Previously, the
repayment period began the day after the grace period ended.)

DEFERMENT

Borrowers receiving unsubsidized Stafford Loans qualify for the
same deferments as subsidized Stafford Loan borrowers. The most
recent deferment provisions are listed on pages 10-30 to 10-31 of
Section 2. A chart and accompanying footnotes on all FFEL
deferment provisions are provided at the end of Section 6.