There are two types of loans offered by the U.S. Department

a) subsidized

b) unsubsidized loan

Subsidized loans are mostly available at zero percentage interest to the school students. In case of unsubsidized loan, the percentage of interest accrues the moment the loan is disbursed. But there are some common features between them. Whether subsidized or unsubsidized, they are available for all the students. They are guaranteed by the U.S. Department of Education or by the government agencies. They are lent in small amounts upto $ 2800 per year, without taking into consideration the actual cost to be incurred by the students. But they are repayable after six months of graduation. The federal loan is provided by the financial institutions like banks, but the direct loan is arranged by the U.S. government. According to the legislation passed by the American Senete house, the maximum rate of interest payable is 4.7% for the school students and 5.3 for the college goers.

Subsidized loans are provided at zero percentage interest for the school students as the government itself takes the responsibility of making the repayment. They are merit-based rather than need based because they do not consider the issues like family dependents, household income and number of dependents at home.

Unsubsidized loans become outstanding right from the time the loan is disbursed.