Both are federal Direct Loans, and both eventually have to be repaid — the entire difference between subsidized and unsubsidized loans comes down to who's responsible for the interest while you're still in school. * With a Direct Subsidized Loan, the federal government pays the interest on your behalf while you're enrolled at least half-time, and continues covering it through your six-month grace period after leaving school. You're not charged a dime of interest during that entire stretch — the balance you started with is the balance you begin repaying. * With a Direct Unsubsidized Loan, interest starts accruing from the moment the loan is first disbursed, not when repayment begins. If you don't make any payments while in school — which most students don't — that unpaid interest keeps building the whole time. Once you enter repayment, it capitalizes, meaning it gets added to your principal balance, and you then start paying interest on that larger, combined amount. * Eligibility differs too: subsidized loans are only available to undergraduates who demonstrate financial need through their FAFSA. Unsubsidized loans don't require demonstrating need, which is why graduate students and higher-income undergraduates can still access them, generally at higher borrowing limits than subsidized loans allow. * Because subsidized loans are strictly better financially — same interest rate, but the government covers interest you'd otherwise owe — the standard advice is to accept any subsidized loan you're offered before turning to unsubsidized borrowing to cover remaining costs.