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A Stafford loan is a variable interest rate loan made to students based on financial need. There are two kinds of Stafford Loans: Subsidized and Unsubsidized.
With a Subsidized Stafford loan, you are not responsible for the interest charged on the loan as long as you are in school as an at least half-time student. Instead, the government pays the interest for you while you are in school.
Students receiving Unsubsidized Stafford loans are responsible for the interest charged on the loan while in school (the rate varies annually based on the prior year average T-Bill rates but will never exceed 8.25%). A student can choose to either pay the interest or capitalize it. Capitalization occurs on a periodic basis and compounds over time – meaning interest charged on the principal is added to the principal, and then interest is charged on the principal plus interest and so on. Beware! Capitalized interest can be very costly! It’s best to pay the interest if you can.
Repayment of either type does not begin until six months after the student graduates or stops attending on an at least a half time basis (6 undergraduate hours or 4 graduate hours). It is recommended that students make an effort to pay down the interest on an annual basis.
For more information about Stafford Loans, please visit Types of Aid - Loans.