What is interest?
Interest is paid to a lender as a cost of borrowing money. Interest is calculated as a percentage of the unpaid principal amount. Unlike other forms of debt, such as credit cards and mortgages, Direct Loans are daily interest loans, which means that interest accrues (accumulates) daily. Depending on whether your loans are subsidized or unsubsidized, you may or may not be responsible for paying the interest that accrues while you are in school.
Direct Subsidized Loans have slightly better terms to help out students with financial need. These loans are available to undergraduate students with financial need.
The U.S. Department of Education will pay the interest on a Direct Subsidized Loan:
Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need.