A Federal Direct student loan for which interest is paid on your behalf. Federal Direct student loans charge a fixed interest rate and a small fee for the money that is borrowed for both parents and students. The interest charges for student loans accrue on a daily basis using a simple interest formula. Students that demonstrate a higher level of financial need may qualify to have the interest rate paid for (subsidized) by the government during the in-school deferment and grace periods. This can be a significant savings. A freshman with a $5,500 Direct subsidized student loan enters repayment owing $5,500. A student that is unsubsidized either pays $1,134 in interest while in school or owes $6,634 at the start of repayment.