A Stafford loan is a loan product offered to students enrolled in American institutions of higher education to help finance their education. The loans are offered under Title IV of the Higher Education Act of 1965 (with subsequent amendments) and are therefore guaranteed by the U.S. Department of Education either directly or through guarantee agencies.

Because the loans are guaranteed by the full faith of the US Government, they are offered at a lower interest rate than the borrower would otherwise be able to get for a private loan. On the other hand, there are strict eligibility requirements and limits on Stafford loans, and they get special treatment in personal bankruptcy cases. Students applying for a Stafford loan must first complete a FAFSA.

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Stafford loans are available to students either directly from the United States Department of Education through the Federal Direct Student Loan Program (FDSLP, also known as Direct) or from a private lender through the Federal Family Education Loan Program (FFELP).

No payments are expected on the loan while the student is enrolled full time, and for six months after the student has either graduated or dropped out of a full-time program.

Stafford loans have a dual structure interest rate: interest rates are lower when the student is in-school and for the grace period. Once they are in repayment, the interest rate increases.

Stafford loans are available both as subsidized and unsubsidized loans. Subsidized loans are offered to students based on demonstrated financial need; with these loans, interest is paid by the federal government while the student is enrolled and during the grace period.

Interest on Stafford loans was previously based on an adjustable formula, in which rates were set annually based on the prevailing 91-day Treasury bill. As of July 1, 2006, however, all Stafford loans are issued with a fixed interest rate. For direct loans and most loan providers, the rate is currently set at 6.80%.

As the new rate goes into effect, some loan providers are foregoing portions of the margin they are entitled to under the Federal program, offering interest rates lower than the standard rate. Many are also offering price incentives related to payment history, direct debit, etc. MyRichUncle was the first to announce reduced interest rates, expecting others to follow with time. Collectively, interest rate reductions, principal reductions and origination fee discounts are known as Borrower Benefits.

In addition, in repealing the Single Holder Rule, Congress also allows loan providers to compete for College Consolidation Loans that are available to students and former students with multiple loans. Specialized consolidation lenders and student loan providers compete on various incentives to attract customers.