Federal loans can involve private lenders

There are currently two federal loan programs: the Federal Family Education Loan Program (FFELP), whereby loans are issued by a private lender, insured by the federal government in case of borrower default, and the Federal Direct Loan Program (DL), whereby loans are issued directly by the federal government.

Both types are considered "federal" loans, even though the FFELP involves private lenders. Within both FFELP and DL, there are Stafford loans for undergraduates and graduates; Grad PLUS loans for graduates (which can be taken in addition to Stafford); and Parent PLUS loans. (A third type of federal loan, the Perkins, is supplied by the government and administered through colleges.)

Nearly identical terms, but different levels of support
From the borrower’s perspective, there are no substantial differences between FFELP and DL loan terms. Both require the Free Application for Federal Student Aid (FAFSA) annually; both require no credit check; both have the same annual caps on the amount you can borrow; both have nearly the same interest rate set by Congress (Parent PLUS loans in the FFELP have a slightly higher rate than in DL); and both offer practically the same repayment options, with some very slight variation.

FFELP borrowers typically receive additional debt management support and counseling from federally funded nonprofits, such as American Student Assistance, that service FFELP but not DL. So how do you choose a federal loan program? Well, you, the borrower, don’t; typically, individual colleges select which program to participate in (a small amount of schools offer both).