In addition to filing a FAFSA, a separate Federal Stafford Loan application, called the Application and Promissory Note for Federal Stafford Loans, is also required to borrow under this program. Undergraduate Federal Stafford Loan applicants also must have a determination of eligibility or ineligibility for a Federal Pell Grant before the Federal Stafford Loan can be certified.

The lender must send the borrower's loan proceeds directly to the school. The school is responsible for delivering the funds to the student. If a loan is for a first-time, first-year undergraduate borrower, the school may not give the funds to the student until he or she has been enrolled for at least thirty days of the program of study.

In addition, all first-time Federal Stafford borrowers must attend a loan counseling session before receiving the first disbursement of their loan proceeds.

The maximum annual amounts that may be borrowed are:

• $2,625 for the first year of undergraduate study;
• $3,500 for the second year of undergraduate study;
• $5,500 per year for each remaining years of undergraduate study;
• $8,500 per year for graduate and professional students.

The undergraduate annual loan limits are reduced, or prorated, for students enrolled in undergraduate programs of study that are less than an academic year in length. They must also be reduced for students enrolled in programs of study that are greater than or equal to one academic year, but whose remaining period of enrollment is less than an academic year.

Also available are unsubsidized Federal Stafford Loans. These loans are intended to provide assistance to families who may not have "need" according to the above formula, but would benefit from having access to a low-interest federal student loan program.

Unlike the other federal student aid programs, unsubsidized Federal Stafford Loan borrowers are not required to demonstrate "need" in order to be eligible. In other words, The Expected Family Contribution (EFC) is not included in the need formula for an unsubsidized Stafford Loan. As a result, the unsubsidized loan can be used to replace EFC.

Unlike the subsidized Stafford Loan, the government does not pay the interest that accrues for unsubsidized Stafford Loan borrowers, even while they are enrolled at least half-time in an eligible program of study. Instead the interest must be paid by the borrower. This can be done in one of two ways. While they are enrolled, borrowers can pay the interest that accrues as it accrues. Alternatively, rather than pay the interest during periods of enrollment, borrowers can have that interest capitalized, which means adding it to the principal amount borrowed. All capitalized interest must be repaid. Repayment begins when the borrower leaves school. The important thing to note here is that capitalized interest becomes principal in this process. Thus, students who use this second option end up paying interest on accrued (and then capitalized) interest.

The amounts of any Federal Pell Grant for which the student is eligible must be included as estimated financial assistance when determining the allowable amount of the unsubsidized Stafford Loan. In addition, to ensure that students borrow the least costly, and thus most desirable loans first, their eligibility for a subsidized Stafford Loan must always be determined before they are allowed to borrow from the unsubsidized Stafford Loan program. If eligibility for the unsubsidized Stafford Loan remains, the student may borrow from that program as well.

In addition to the Federal Stafford Loan limits listed above, independent students (or dependent students whose parents are unable to borrow a Federal PLUS Loan) may borrow additional amounts under the unsubsidized Federal Stafford Loan Program, as follows:

• $4,000 per year for the first and second years of undergraduate study;
• $5,000 per year for the remaining years of undergraduate study;
• $10,000 per year for graduate and professional students.

All students are limited in the total amount they can borrow from the Federal Stafford Loan Program during their undergraduate and graduate academic careers. These limits are referred to as aggregate loan maximums and will vary depending on the student's dependency status and degree being sought.

The aggregate amount a dependent undergraduate student may borrow from the subsidized and unsubsidized Stafford Loan Program combined is $23,000. Independent undergraduate students or dependent students whose parents are unable to borrow a Federal PLUS Loan, may borrow $23,000 from the subsidized Stafford Program and $46,000 from the unsubsidized Stafford Loan Program less any amounts borrowed from the subsidized Stafford Loan Program.

Graduate students may borrow a total aggregate maximum of $65,500 from the subsidized Stafford Loan Program and $138,500 from the unsubsidized Stafford Loan Program less any amount borrowed from the subsidized Stafford Loan Program. These aggregates include any subsidized and unsubsidized Stafford Loan amounts borrowed for undergraduate study.

For new loans made after July 1, 1994, the maximum interest rate is fixed at 8.25%. The interest rate is determined each year, on June 1st. For the period July 1, 1997, through June 30, 1998, the rate is 7.66% during in-school, grace, and deferment periods, and 8.25% during repayment.

Lenders are authorized to charge borrowers an up-front origination fee of up to 3% of the principal amount of the loan. In addition, borrowers also pay an insurance premium which by law cannot exceed 1% of the principal amount of the loan. These fees are deducted proportionally from each disbursement of the student's loan.

Repayment with interest begins six months after graduation or termination of enrollment on at least a half-time basis. Students may be allowed up to ten years to repay based upon the amount they have borrowed. As with the Federal Perkins Loan Program, there are provisions for deferment of repayment under specified conditions.