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The difference between a subsidized loan and an unsubsidized loan is that the former is given based on financial need whereas the latter entails paying interest until the debts are repaid in full.

An example of a subsidized loan is the Stafford Loan, either Direct or FFEL.  The amount loaned to a student depends upon whether or not they are independent or dependent, and what year they are currently attending college.

In addition, obtaining a subsidized Stafford Loan is based on the following criteria:

1.  Financial need.
2.  Loan will cover part or all of their education needs.
3.  The U.S. Department of Education pays the interest.
4.  The loan amount cannot exceed your financial needs.

For an unsubsidized Stafford Loan:

1.  The student need not demonstrate financial need.
2.  The U.S. Department of Education does not pay the interest.

In order to determine the amount of an unsubsidized loan, each college will utilize the following criteria:  the cost of attendance, eligibility for a Pell Grant, eligibility for a Stafford Loan, and any other financial aid received.

However, depending on your financial needs, you may receive both subsidized and unsubsidized loans for the same enrollment period, but the total amount of these loans may not exceed the annual loan limit.

Repayment of an unsubsidized loan requires that you pay the interest accrued, pay the interest while in school, or allow the interest to accumulate and added to the principal loan.

Under the Direct Loan Program, students and parents borrow directly from the U.S. Department of Education at their particular schools.  Direct loans are both subsidized and unsubsidized and payment is made directly to the schools.

Conversely, FFEL loans are made through private lenders and are also subsidized and unsubsidized.  These loans are repaid to the bank or private lender.

As you can see, there is a vast difference between these two types of loans.  Therefore, before you decide which is best for you, research each one thoroughly and ascertain if the college of choice offers both.