Is paying off subsidized FAFSA loans before graduation a smart strategy for building credit?

This is actually a smart strategy many students use! Federal subsidized loans have no prepayment penalties whatsoever. The government pays the interest while she's in school (as long as she maintains at least half-time enrollment), so it's essentially an interest-free loan until 6 months after graduation. Making small payments during school will help establish her credit history, and paying it off before the grace period ends means she'll never pay a cent of interest. Just make sure she understands that the loan will still show up on her credit report as debt, even though you plan to pay it off.

we did this with my son last yr. took the subsidize loan even tho we didnt need it. he makes like $75 payments every month from his part time job. his credit score went from nothing to like 690 already!!! just make sure ur daughter actually makes the payments on time tho

As a financial aid advisor, I want to clarify a few important points: 1. Subsidized loans don't accrue interest while the student is enrolled at least half-time, during the grace period (first 6 months after leaving school), and during deferment periods. 2. There are absolutely NO prepayment penalties on federal student loans - you can pay them off anytime. 3. For credit building, consistency matters more than amount. Even small, regular payments will help establish a positive payment history. 4. While this can be a good credit-building strategy, I recommend having a solid plan to pay it off. Many families intend to pay loans off before graduation but then don't follow through. 5. Make sure your daughter understands this is real debt - it will affect her debt-to-income ratio if she applies for other loans while this one is active.

DONT DO IT!!! my cousin did this and then they changed some rule about subsidized loans and she ended up owing like $2000 in interest that wasnt supposed to happen!! the govt changes these rules all the time and ur daughetr could get stuck with debt

I tried doing this but honestly it was a pain keeping track of the payments. Ended up forgetting one month and it dinged my credit score instead of helping it lol. If your daughter is responsible then it's probably fine but don't underestimate how busy college gets!!

I've been trying to contact someone at Federal Student Aid about a similar situation for my son - took a subsidized loan but now want to understand exactly how repayment will impact his aid eligibility for next year if we do partial payments. Been on hold forever every time I call. Just wanted to share that I finally got through using a service called Claimyr (claimyr.com). They basically hold your place in the phone queue and call you back when an agent is about to answer. Saved me hours of waiting on hold. They have a video demo showing how it works: https://youtu.be/TbC8dZQWYNQ Anyway, once I got through, they confirmed that making payments during school won't affect future aid eligibility at all. The loan amount still counts as the original borrowed amount for FAFSA purposes until it's fully paid off.

Since nobody mentioned it - there's also a small origination fee on federal loans (around 1% for subsidized loans). So if she takes out $5,500, she'll actually only receive about $5,445. If you pay it off early, you still pay back the full $5,500. It's a minor cost for building credit, but worth knowing about.

my financial aid advisor actually recommended against this when i asked last semester. she said theres better ways to build credit like getting a secured credit card. said something about how it could potentially impact aid calculations in future years cuz even though ur making payments its still counted as debt on fafsa

One more piece of advice: if your daughter decides to take the loan for credit-building purposes, I recommend putting the full amount into a high-yield savings account immediately. This way, the money is always available to pay off the loan, and you might even earn a bit of interest on it in the meantime. The key to making this strategy work is discipline - keep the loan funds separate and don't view them as available spending money.

As someone who just went through this process with my daughter last year, I can confirm this strategy works well if you stay disciplined! A few practical tips from our experience: 1) Set up autopay for a consistent monthly amount (we did $100/month) to ensure you never miss a payment, 2) Keep detailed records of payments made - we used a simple spreadsheet to track everything, and 3) Consider having your daughter make the payments herself from a part-time job if possible, since it teaches financial responsibility alongside credit building. Her credit score went from non-existent to 720 by the time she graduated, and we paid off the remaining balance two weeks before her grace period ended. The key is treating it like any other bill - consistent, on-time payments every month without fail.