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Federal student loans are loans offered by the U.S. Department of Education to help students pay for a higher education at a four-year college, university, community college, trade school, or technical school. Student loans are unique because you are not required to repay the principal of the loan until you graduate or fall below half-time enrollment.

In contrast, when you borrow money to buy a house (in the form of a mortgage), buy a car, or make another purchase, you begin to repay the loan soon after receiving the money. In the example of a mortgage, you borrow money from a bank, move into the new home, and begin monthly mortgage payments immediately.

Direct Subsidized Loans are federal student loans that are made available to undergraduate students with demonstrated financial need. The defining feature of subsidized loans is that the government will make your interest payments for you while you are in school (and through the six month grace period after graduation).

If you qualified for and borrowed $20,000 worth of Direct Subsidized Loans throughout your college years, at graduation day you’d still only owe $20,000. The government made the interest payments for you while you were in school.

Direct Unsubsidized Loans are federal student loans that begin to accrue interest immediately and are available to both undergraduate and graduate students, regardless of the student’s financial need.

Unlike subsidized loans, you are responsible for making interest payments while you are in school. If you don’t make the interest payments, the interest will accrue (or build up) and be added to the principal balance. This is referred to as the interest being capitalized. In other words, the interest will accumulate and then be converted into additional loan borrowings.