First-Year First-Time Borrowers

First-year students who are first-time borrowers must participate in an entrance interview before loan money can be disbursed. During this counseling session, borrowers review their rights and responsibilities. Also during this session, repayment plans are reviewed and explained in detail. As a first time borrower, you may not receive your first installment until 30 days or more after classes begin. This way, you won't have to repay the loan if you don't begin classes or if you withdraw during the first 30 days of classes. However, you may owe money to the school for a portion of tuition or other fees. This 30-day delayed disbursement requirement does not apply at schools with particularly low loan default rates. Otherwise, federal regulations mandate that Federal Stafford Loan funds must be disbursed to borrowers accounts within three days of receipt by the institution. Because there is likely to be a delay in the disbursement for first time borrowers they should be sure to have enough money available to cover any expenses that are due before the disbursement arrives.  

 Must be Enrolled at Least Half-Time 

To participate in the Federal Stafford Loan Program, enrollment must be on at least a half-time basis. After graduating, leaving school, or dropping below half-time enrollment, student borrowers have a six-month "grace period' before the first loan payment is due.  The standard repayment period is ten years. Repayment options can extend the repayment period up to 30 years.  

Master Promissory Note (MPN) 

The Stafford Loan Master Promissory Note (MPN) is a contract between you and your lender. This contract represents your promise to repay and an agreement to the terms and conditions of the loan. Before signing, be sure to read the MPN carefully, along with the instructions and your rights and responsibilities as a borrower.   

Some schools use the MPN as a "single year" loan note in which you will need to complete a new one for each new loan. If the school uses the MPN as a "multiyear" loan note, borrowers will only need to complete the MPN the first time they borrow. All subsequent loans for up to 10 years will be disbursed using the original MPN. If a student changes lenders, they will need to complete a new MPN. Borrowers also may need to complete a new MPN if they transfer to another school.   

Unique Features – Unsubsidized 

Unsubsidized Stafford loans are for all eligible students, regardless of income. The student borrower is responsible for paying all the interest on the loan, but you can allow it to accumulate while you are in school and during the grace period. If the interest is allowed to accumulate in this way, the interest will be capitalized at repayment. When interest is capitalized, it's added to the amount borrowed and any future interest will be based on the higher loan amount. Although not feasible for everyone, in order to pay less in the long run, the interest should be paid while you're in college. The interest may be tax deductible. As always, you should consult with your tax advisor to determine tax deductibility.   

Federal Direct Loan (Direct Loan) Program and Federal Family Education Loan (FFEL) Program
Stafford Loans may be made either through the Federal Direct Student Loan (Direct Loan) Program or through the Federal Family Education Loan (FFEL) Program. Some schools participate in the Direct Loan Program others participate in the FFEL Program some actually participate in both. Direct Stafford Loans and FFEL Stafford loans have identical loan limits, and identical deferment and cancellation provisions. The major difference between the two is the source of the loan funds. Under the Direct Loan Program, the loan funds provided directly from the U.S. government through your school. Under the FFEL Program, loan funds are provided by private lenders (banks, credit unions, or other financial institutions that serve as lenders that participates in the FFEL Program). Loan repayment options between the FFELP and Direct programs differ somewhat.  

Disbursement and Use of the Stafford Loan
In most cases, Stafford loans are disbursed in at least two installments, and no installment will be greater than half the amount of the loan. The Stafford Loan must be used only for education-related expenses, such as tuition, lab fees, books and supplies, and “reasonable” living expenses as determined by the school. If the borrower has dependents, such as a child or elderly parent, they may use their loan to cover the expense of caring for them while the borrower study or are in class.   

If loan money remains after tuition, fees, room and board is paid, you will receive the remaining balance by check or in cash unless you give the school written permission to hold the funds until later in the enrollment period.   

The Education Resource Center (ERC) recommends that students prepare a spending plan and do a cash flow assessment to be certain that they do not spend money required for paying their school bill for the next term. ERC has spending plans (budget worksheets) and cash flow worksheet available in the "Building Assets" and "Wealth for College and Beyond" section.  

 If at the end of the school year, students find that they have loan money remaining, due to excellent management of these funds, the Education Resource Center suggests that they return the money to the lender or borrow less for the coming year.  

 Money not borrowed is money that does not have to be repaid. In essence, it's a scholarship to yourself that's worth 3 to 5 times the amount you did not borrow.      

Loan Cancellation Before You Sign the Promissory Note
Your school must notify you in writing whenever it credits your account with your Direct or FFEL Stafford Loan funds. This notification must be sent to you no earlier than 30 days before, and no later than 30 days after the school credits your account. You may cancel all or a portion of your loan if you inform your school that you wish to do so within 14 days after the date that your school sends you this notice, or by the first day of the payment period, whichever is later. Your school can tell you the first day of your payment period. If you receive Stafford Loan directly by check, you may refuse the funds by not endorsing the check.   

Loan Refund
The federal government requires every school to have a refund policy. Before you enroll, you should ask the school what its criteria are for a refund and what the refund covers-for instance, tuition, fees, and room-and-board. If you're eligible for a refund, your school sends your refund to the holder of your loan, who applies it to reduce your outstanding loan balance.