The difference rests primarily in interest repayment terms. The U.S. Department of Education pays the interest on subsidized loans while the holder is in school at least half-time. It also covers the interest for a grace period of six months after you leave school (graduating or dropping out) and during any periods of deferment (temporary postponement allowed under certain conditions such as returning to school or time of economic hardship). Borrowers are responsible for paying the interest on unsubsidized loans during all periods.Eligibility for a subsidized federal student loan hinges on financial need, and only undergraduates can apply.