Federal Stafford Loan Subsidized and Unsubsidized Stafford Loans Their are two types of Federal Stafford loans; Subsidized and Unsubsidized. Students who demonstrate financial need may obtain the loan on a subsidized basis.  The borrower does not pay interest on the subsidized loan while they are in school, the federal government pays the interest for the borrower. Students who do not demonstrate financial need may obtain the Stafford loan on an unsubsidized basis.  The unsubsidized loan interest accrues while the student is in school and during the repayment period. The borrower has the choice to pay on the interest or let the interest accrue and add to the principle of the loan. The Stafford loan interest rate, for Subsidized 2008-2009 loans, is a fixed rate at 6.0 percent for Undergraduate students, 6.8 percent for Undegraduate Unsubsidized loans. Graduate Subsidized and Unsubsidized loans have a fixed interest rate of 6.8 percent. An origination fee of up to 2% (includes a 1% federal origination fee and a 1% default fee) for undergraduate and graduate students is deducted from the loan proceeds.  There are lenders and guarantors that may pay all or a portion of these fees. Although the University determines the financial need and the amount of subsidized and/or unsubsidized eligibility, the loan is made by banks, credit unions and other lending institutions.