In 1965 the United States Congress established the Federal Family Education Loan Program (FFELP) in order to give financial aid to students. One part of this program is Stafford loans which were originally designed to help only those students in very real financial need but which now make up over ninety percent of all Federal education loans. Over the years Stafford loans have altered to take account of changing conditions and now there are two forms of the loan - subsidized and unsubsidized. For subsidized loans the Federal Government assumes responsibility for paying interest that accrues on a loan from the date of issue until the student is required to begin making repayments. Generally a student does not have to make repayments as long as he stays enrolled in a program of study that is considered to be a 'half-time' or greater program of study and for a period of six months after the end of his course. However, a student can begin to make payments at an earlier point if he wishes to do so. Because the interest on the loan is being subsidized, these loans are usually only granted in cases of need and aid officials will take into account both a student's and his family's income when determining whether or not a student qualifies for a subsidized Stafford loan. Students are required to fill out a Free Application for Federal Student Aid (FAFSA) application that includes income details and each student is then given a number known as the Expected Family Contribution calculated from the declared income. In the region of two-thirds of all subsidized Stafford loans are provided to students with parents having an Adjusted Gross Income of less than $50,000 a year. Another one-quarter are granted to those in the $50-100,000 a year bracket. After this the definition of the term 'need' becomes somewhat fuzzy and slightly under one-tenth of subsidized loans are allocated to students with a combined family income of more than $100,000. For those students who do not qualify for a subsidized loan the majority will qualify for an unsubsidized Stafford loan. The major difference here is that students have to meet all loan interest payments, though again payment will not generally begin until six months after the end of the student's course. An unsubsidized Stafford loan can be quite costly because the interest accumulates over the period of study and so the capital sum for eventual repayment will also grow. Let us consider an extremely simplified example. Let us assume that a student borrows the sum of $5,000 at the start of his first year of study at an interest rate of 6.8%. At the end of the year the interest due is $340 which will be added to the loan. In the second year the student will then accrue interest on $5,340 at 6.8% which will come to approximately $363 raising the total borrowed after two years to $5,703. Of course this is not wholly accurate because interest is calculated and added monthly but it does nevertheless illustrate the principles underlying this form of loan. Depending on the sum of money that the student borrows each year and the time before repayment starts you can see that a student can pay a relatively high price for the benefit of delaying the repayment of a Stafford loan. In spite of the ostensibly high cost it ought to be borne in mind that a lot of the alternative methods for funding a college education are considerably more costly and that many students would simply not be able to afford to attend college without the Stafford loans scheme.
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