Life cycle of a Federal Stafford Loan

Graduate students By understanding the basic steps in the Stafford Loan life cycle, you will be better prepared to borrow wisely and manage your repayment successfully.

 

The following information summarizes the life cycle of Federal Stafford Loans (subsidized and unsubsidized) under the Federal Family Education Loan Program (FFELP).

  1. Filing the FAFSA
  2. Completing the MPN
  3. Receiving your loan proceeds
  4. While you are in school
  5. After you leave school
  6. Repaying your loan
  7. Paying your loan in full

Stage 1: Filing the FAFSA Students (and parents of dependent students) must file the Free Application for Federal Student Aid (FAFSA) to apply for all forms of federal aid, including Stafford Loans.

  • File the FAFSA as soon as possible after January 1 for the next academic year. File faster online at www.fafsa.ed.gov.
  • Information from the FAFSA is sent by the federal processing center to your school.
  • Your school will send you a financial aid award notice indicating the amount you are eligible for under the Federal Stafford Loan program.
  • Confirm your request to receive a Federal Stafford Loan by signing and returning your award letter to the school's financial aid office or following other instructions provided by the school.

Stage 2: Completing the MPN You must complete a Master Promissory Note (MPN) so Stafford Loan funds can be credited to your account at school. The MPN provides important information about the terms of your loan, including the interest rate, grace period, and repayment plan options.

  • After your Stafford Loan eligibility is determined and confirmed, you will receive a paper MPN or instructions for completing an MPN electronically.
  • Your school will provide instructions on selecting a lender, generally by providing a list of preferred lenders from which to choose. If you attend a school that participates in the Federal Direct Loan Program (FDLP), the federal government will be your lender.
  • Follow the instructions to return your completed MPN to your school, to the lender, or to the guarantor.
  • Store your copy of the MPN in a permanent record file.

Download a blank MPN

Stage 3: Receiving your loan proceeds Once your MPN has been processed, the loan funds are sent to your school on a schedule defined by your lender and school.

  • Your lender sends your loan proceeds to your school either by paper check or electronic funds transfer.
  • You may be required to endorse your check; your school will contact you if this is necessary.
  • You must participate in entrance counseling to receive or have your loan proceeds credited to your student account. Your school's financial aid office will inform you about how to meet this federal requirement.
  • Your school applies your loan proceeds to any outstanding costs you have at the school. After your bill has been satisfied, your school will return any remaining funds to you.

Stage 4: While you are in school Federal Stafford Loans (both subsidized and unsubsidized) do not need to be paid while you are enrolled in school at least half time.

  • The interest on a subsidized loan is paid by the federal government during school.
  • The interest on an unsubsidized loan is the responsibility of the borrower. You may choose to pay the interest while you're in school or you can let the interest accrue and capitalize (interest is added to the principal of the loan prior to the start of repayment).
  • You must keep your lender informed about any changes in your enrollment status or expected graduation date.

Stage 5: After You Leave School You must begin repaying your Stafford Loan within six months after you graduate, leave school, or drop below half-time enrollment. This six-month period is called your grace period.

  • You must participate in exit counseling before you leave school. Your school's financial aid office will tell you how to meet this federal requirement.
  • Your lender sends you a repayment schedule detailing when your first payment is due, your monthly payment amount, the number of monthly payments you will make, and the interest rate on your loan.
  • You must repay your loan—principal and interest—on time each month, even if you do not receive any notice from your lender or loan servicer.
  • You must maintain your current name and address with your lender or loan servicer.

Stage 6: Repaying your loan In general, Federal Stafford Loans must be repaid within 10 years. You can choose your repayment plan from the following options before your payments begin. If you don't choose a plan, you receive the standard 10-year repayment schedule automatically.

  • Standard repayment: Borrowers pay a fixed monthly amount (a minimum of $50) for up to 10 years. The actual length of repayment depends on the total amount borrowed.
  • Graduated repayment: Borrowers begin with lower monthly payments and then gradually increase their payment amount over the 10-year repayment term. Payments must at least equal the interest accrued on the loan.
  • Income-sensitive repayment: Borrowers can increase or decrease their monthly payment amount based on their current income and the loan amount. Payments must at least equal the interest accrued on the loan.
  • Extended repayment: New borrowers with Stafford Loans totaling $30,000 or more disbursed after Oct. 7, 1998 can make fixed or graduated monthly payments for up to 25 years.

Use our calculators to see how different repayment scenarios will affect your payments.

Nellie Mae rewards Stafford Loan borrowers for on-time repayment with Nellie Mae Cash Back. Eligible borrowers earn a check or loan credit-equal to 3.3% of their original principal loan balance. Learn more at our Stafford Loan benefit page.

Postponing loan payments

  • Student loan deferment is a temporary period when no loan payment is due. Interest payments can be made or be postponed. If your interest payments are postponed, the interest is added on to the principal of your loan (capitalized). You may be eligible to defer Stafford Loan payments if you remain in or return to school at least half time; participate full time in a graduate fellowship program or in rehabilitation training; are seeking but unable to find full time employment (maximum three years); or experience economic hardship (maximum three years). Borrowers called to active military status during school or their grace periods are also eligible for deferment.
  • If you are not eligible for deferment but are still unable to make your scheduled loan payments, you may request forbearance from your lender. Forbearance is a period (granted in 12-month intervals for up to three years) when smaller-than-usual or no payments are required.

Resolving repayment problems If you experience problems related to repaying your Stafford Loan and you're unable to resolve them with the parties involved, you may contact the Office of the Student Loan Ombudsman at 877-557-2575 or http://ombudsman.ed.gov.

Stage 7: Paying your loan in full After you make your final loan payment, your lender sends you a copy of your original Master Promissory Note confirming that the loan is paid in full.

Your lender notifies the credit bureaus that you have fully repaid your loan.