A subsidized student loan is one on which the government actually pays the interest while a student remains enrolled in a qualified college or university. This means that any interest that would have been added to a subsidized loan balance is essentially erased by the government.
Subsidized loans are often confused with student loans that are in deferment. These loans still have the interest added to them throughout the student's education career, but no payments are due until after graduation or withdrawal.
Subsidized loans are generally reserved for students demonstrating financial need on an ongoing basis, throughout their college education.