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Subsidized Loan
Definition
A federal student loan where the government pays the interest while you're in school and during deferment.
Explanation
Subsidized loans are need-based federal student loans where the U.S. Department of Education pays the interest while you're in school at least half-time, during the six-month grace period, and during deferment. This makes them the most affordable type of student loan.
Only undergraduate students with demonstrated financial need qualify. They generally have better terms than unsubsidized loans.
Example
You borrow $5,500 in subsidized loans each year. The government covers the interest during school. After graduation, you owe exactly what you borrowed — the interest was paid for you.