Ten Steps to a Stafford Loan
This article describes the steps involved in getting a Stafford loan for college. The majority of students will complete these steps, but some students may be required to complete additional steps depending on their school’s financial aid process. If you are having difficulty with any of these steps, please contact an Edfinancial Services customer service representative.
Step 1: Completing the FAFSA
The Free Application for Federal Student Aid, or FAFSA, is the key to many types of financial aid. The FAFSA is required to obtain a federal Stafford loan. A student will complete the FAFSA each year for the applicable school year. For example, the 2008-2009 FAFSA will cover Fall Semester 2008, Spring Semester 2009, and Summer Semester 2009.
The FAFSA asks the student for basic information such as name, date of birth, Social Security Number, and what school the student plans to attend. The student may also have to provide income tax information for himself and his parent(s). The FAFSA can be filled out on paper or online through the U.S. Department of Education’s FAFSA website. To complete the FAFSA online, the student should first apply for a PIN from the Department of Education; the PIN allows you to sign the FAFSA electronically. When complete, the Department of Education reviews the FAFSA.
Step 2: Reviewing the FAFSA
The Department of Education reviews the student’s FAFSA to determine the Expected Family Contribution, or EFC. The EFC describes how much the student’s family should be able to contribute to the expense of the student’s education. Factors such as family size, number of family members in college, and family savings and income are used to calculate the EFC. The amount of federal aid that a student is eligible for is based on the EFC; the greater the EFC, the lesser the amount of federal aid the student can receive.
The FAFSA typically asks for both parents’ income information, or information for whichever parent claims the student as a dependent. Most traditional students are claimed as a dependent on their parents’ income taxes. To be considered an independent student, you must be at least 24 years old, have served in the military, be married, or have dependents of your own. Also, if you are a graduate student or your parents were denied for the Parent PLUS loan, you are automatically considered independent and may be eligible for additional funding.
Step 3: Results of the FAFSA
Once the EFC is determined, the Department of Education will send a Student Aid Report, or SAR, to the student explaining how much federal funding the student is eligible to receive. The Institutional Student Information Report, or ISIR, is also generated by the Department of Education and sent to the school(s) listed by the student on the FAFSA. The ISIR contains information similar to that on the SAR and tells the school(s) how much aid the student may receive. The results of your FAFSA will be available after your application is processed, and you can check the status on the Department of Education’s website.
Step 4: The Award Letter
Schools take the information on the ISIR and the student’s admission application to create an award letter for the student. The award letter may be received electronically or through the mail and tells the student how much he can borrow in federal loans, as well as any scholarship or grant money he may elect to receive. The student must wait for this letter before he can move to the next step.
Step 5: Accepting the Money
With award letter in hand, the student can choose how much money he wants for school, up to the full amount offered in the award letter. Students can accept the full amount offered to them, or they can take a partial amount depending on their needs and expenses. The student must accept the money through the school’s preferred process, which usually involves paper or electronic forms. You should accept awards only from the school you plan to attend.
Step 6: Getting a Loan
A student who wants to borrow a Stafford loan must select a lender. An array of student loan lenders exists, and a student may choose any lender he desires. Usually schools will provide students with a list of preferred lenders. The school selects lenders for this list based on a history of working with the lenders, and the benefits and customer service offered by the lenders. Students may work from this list, or find a lender on their own. Once the student selects a lender, he must tell the Financial Aid Office at his school what lender he chose.
Step 7: The Master Promissory Note
The student must complete and sign a Master Promissory Note, or MPN, with his chosen lender. The student’s school will tell the student whether he can complete the MPN on paper or online. The MPN is the contract for the loan and states that the borrower agrees to the terms of the loan, including repayment of the loan. The borrower should read the MPN carefully and make sure he understands the terms of the loan prior to signing the note. The MPN is typically good for 10 years; this means that a borrower may apply for future Stafford loans using the same MPN. He will generally complete this step only once every 10 years, unless a new MPN is required annually by his school or other issues warrant a newly signed MPN. MPNs are collected by the loan servicer - a company that manages borrower accounts, processes loan disbursements, and collects payments on behalf of the lender.
Step 8: Certifying the Loan
After the student submits his MPN, the school must certify the student’s loan with the loan servicer. When the school certifies a loan with the servicer, the school verifies that the student is enrolled for the applicable school year and is eligible to receive a Stafford loan.
Step 9: Getting the Guarantee
The servicer must get a guarantee for the loan before it can be disbursed. Federal Stafford loans are guaranteed by the federal government, and the servicer must receive notice from the government that the loan is guaranteed prior to disbursement. A guarantee is a promise by the government to reimburse the lender for most of the loan amount if a borrower fails to repay the loan. The federal guarantee helps make student lending possible for borrowers and lenders; with the guarantee, there is little risk to the lender to make loans to borrowers who are often young and without substantial credit history or assets. And, since there is no credit check on Stafford loans, these loans are easily accessed by young college students.
Step 10: Disbursement
The servicer will collect the certification from the school, the MPN from the borrower, and the guarantee from the government. Once the servicer receives all of these pieces of information, the loan can be disbursed, or sent to the school. Loan funds are sent directly to the school to be applied to the borrower’s tuition bill and other school expenses.
Check Your MPN Status
If you have already completed your MPN and would like to see where you are in the process, click here (you will be asked to sign in). You can see whether your MPN is submitted, unfinished, cancelled, or suspended, and what you can do to advance the process.