A CPP-GMR spin valve having a CoFe/NiFe composite free layer is disclosed in which Fe content of the CoFe layer ranges from 20 to 70 atomic % and Ni content in the NiFe layer varies from 85 to 100 atomic % to maintain low Hc and λS values. A small positive magnetostriction value in a Co75Fe25 layer is used to offset a negative magnetostriction value in a Ni90Fe10 layer. The CoFe layer is deposited on a sensor stack in which a seed layer, AFM layer, pinned layer, and non-magnetic spacer layer are sequentially formed on a substrate. After a NiFe layer and capping layer are sequentially deposited on the CoFe layer, the sensor stack is patterned to give a sensor element with top and bottom surfaces and a sidewall connecting the top and bottom surfaces. Thereafter, a dielectric layer is formed adjacent to the sidewalls.