A subsidized student loan is a loan that does not require you to pay interest while you are enrolled in school. During that time, the federal government pays the interest. But after you graduate and your grace period ends, you must start paying back your loans and interest.
Subsidized loans are based on financial need. The Subsidized Stafford Loan and the Perkins Loan are classified as subsidized loans.
An unsubsidized student loan is a loan that requires you to pay back the interest on the loan while you are in school. Like a subsidized student loan, payment on your principal is deferred until six months after graduation, but instead of the school or government picking up the tab on interest, it is all up to you.
Another major difference between the two types of loans is how much you are allowed to borrow per year. Subsidized loans have a tight cap on how much you can borrow per year and are dependent upon your specific situation and financial status.
An unsubsidized loan also has a cap on it, but it is much higher than the subsidized loan. Basically, you can borrow between $4,000 and $5,000 more per year during your undergraduate career.
When you have reached the cap on borrowing money through a subsidized loan, the only other option is an unsubsidized loan. You will no doubt end up with a combination of the two.