Subsidized loans are refers to loans where the  interest is paid on your behalf. Most often, people are referring to Federal Subsidized Direct Student Loans were the federal government is paying the interest while students are enrolled in school or in other qualifying periods. Federal Direct Student Loans charge a fixed interest rate and a small fee for the money that is borrowed for both parents and students. The interest charges for student loans accrue on a daily basis using a simple interest formula. Students that demonstrate a higher level of financial need may qualify to have the interest rate paid for (subsidized) by the government during the in-school deferment and grace periods. This can be a significant savings. A freshman with a $5,500 Direct Subsidized Student Loan enters repayment owing $5,500. A student that is unsubsidized at the rate of 4.53% either pays $426 in interest while in school or during their grace period or owes $5,926 at the start of repayment.