A Federal Direct Student Loan for which interest is paid on your behalf. 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 either pays $426 in interest while in school or owes $5,926 at the start of repayment.