This newspaper article inadvertently illustrates how little the public knows about the student loan game. The information is mostly correct, yet unless you read carefully, it confuses Direct Loans with Stafford Loans:
"About 20 percent to 25 percent of colleges and universities require that students who get so-called Stafford loans borrow directly from the federal government. Stafford loans are government-backed and have subsidized or deferred interest."
and calls private loans 'unsubsidized' loans:
"Another thing to be aware of is the kind of loan one is taking, he noted. Many of the offers made to students are for unsubsidized loans, which carry no government guarantee or interest rate subsidy."
To clarify: from the student's point of view, there are three kinds of loans, by ascending cost: Subsidized (Stafford) loans, Unsubsidized loans, and Private loans. "Subsidized" from the student's point of view refers to the fact that the interest is subsidized (paid) by the federal government while you are in school, while with unsubsidized loans, it accrues and is added to the balance at the end of school. There are federal limits on both Sub and Unsub loans--lower for Sub loans. That's where private loans come in. You can spot them because they're more expensive than the fixed 6.8% rate.
From the program's point of view, there are five types of loans: FFEL Sub and Unsub, Direct Sub and Unsub, and Private. Direct loans are cheaper for the taxpayer but not for the student. Currently the discrimination between Direct and FFEL is not the students' decision to make. IF you are lucky enough to go to a school that uses Direct Loans, later on you will have better options such as 25-year cancellation, and in some cases, Direct Loans have more borrower-friendly decision making policies. But in most cases it won't matter much. Not nearly as much as if you have private loans.