A direct subsidized loan is distributed after a school evaluates the Free Application for Federal Student Aid, or FAFSA, to determine how much money you are allowed to borrow. There are no interest rates charged on the loan while you are in school, and offers deferment times and grace periods. The subsidized loan interest rate on undergraduate loans distributed from July 1, 2010, to June 30, 2011, is 4.5 percent, while the interest rate on loans disbursed from July 1, 2011, to June 30, 2012 is 3.5 percent. The graduate and professional degree loan rate is 6.8 percent.
Direct unsubsidized loans do not require you to exhibit a financial need for the funds. The school you're attending does determine how much money you can borrow, and interest begins accumulating as soon as the loan money is distributed. You can pay this amount during the time you're in school or allow it to add to the balance. All borrowers for a direct unsubsidized student loan pay 6.8 percent interest.
Direct PLUS loans are available for parents who have dependent students in college. The funds are used to aid in college expenses including tuition, books, room and board and fees. The borrow must be the biological or adoptive parent, the student must be enrolled at least half-time, and the credit history for the parents cannot be adverse. The interest rate is 7.9 percent for all parents as soon as the loan is disbursed. Repayment begins 60 days after disbursement, although deferments are possible.
Private student loans are distributed through alternative lenders and are not guaranteed by the federal government. Rates and conditions vary for each lender on the maximum amount that you can borrow, repayment and grace plans and the interest rates. They range from 2.87 percent to 13.25 percent with different fees; some interest rate deductions may be applied if you enroll in an automatic payment program.