Subsidized vs. unsubsidized loans for FAFSA - Do $5500 loans accrue immediate interest?

Congratulations on your son's scholarship! The $5500 FAFSA loan is likely a combination of subsidized and unsubsidized loans. Subsidized loans (usually up to $3,500 for freshmen) don't accrue interest while in school - the government pays it. Unsubsidized loans start accruing interest immediately. Check his financial aid award letter to see the breakdown. If you have 529 funds sufficient to cover costs, it's generally better to use those since they're tax-advantaged for education expenses. However, some families take the subsidized portion (interest-free during school) and pay from 529 for the rest. This gives a small cash reserve for emergencies while not accruing interest.

i took out loans for my kid 2 yrs ago and regret it sooo much!! the interest is CRAZY even on the "good" loans. if u have 529 $ USE IT!!!!! we thought we were being smart keeping some savings but now were paying like $50 extra a month in interest for nothing

As a financial aid advisor, I recommend looking at the complete picture. The $5500 offered is the standard freshman maximum and typically includes both subsidized and unsubsidized portions. The breakdown depends on your financial need as calculated by your SAI score from FAFSA. For most freshmen, it's: - Up to $3,500 subsidized (no interest while enrolled) - Remainder of $5500 as unsubsidized (interest accrues immediately) With a full tuition scholarship and 529 funds available, consider taking only the subsidized portion if you want to preserve some 529 funds for later years (when costs may increase). Otherwise, using your 529 for everything avoids all debt and is fiscally prudent. One strategic approach: Accept subsidized loans, use 529 for remaining costs, and if you have extra at graduation, make a lump sum payment before the subsidized loan grace period ends.

question - does anyone know if the florida bright futures scholarship affects how much subsidized vs unsubsidized loans they offer? my daughter has something similar and they gave her like NO subsidized loans, all unsubsidized which seems unfair

I tried calling Federal Student Aid for TWO WEEKS straight to get clarification on subsidized vs unsubsidized loan allocations for my son and kept hitting busy signals or being disconnected! Finally used Claimyr (claimyr.com) to get through - they connected me to an agent in 15 mins when I'd been trying for days. The agent explained that my son qualified for $3,500 subsidized (no interest in school) and $2,000 unsubsidized (immediate interest). Totally worth it to get a clear answer! They have a demo video too: https://youtu.be/TbC8dZQWYNQ

LISTEN! As someone who paid off 65k in student loans last year, I BEG YOU to use the 529 instead of loans when possible! Even subsidized loans are still DEBT. Yes they don't accrue interest while in school, but the day your kid graduates, the interest clock starts ticking. With a full ride for tuition and 529 funds available, why take on ANY debt? College costs always end up being more than you expect (books, supplies, trips home, etc.). Save those 529 funds for the unexpected expenses that WILL come up, not as an excuse to take loans you don't need.

One thing nobody mentioned yet - if you use 529 funds, make sure you keep documentation of ALL qualified educational expenses for tax purposes. Room and board counts as qualified expenses if your son is at least a half-time student. Don't just withdraw the exact $12k - track every education-related expense and match withdrawals to them. Also, Florida has some weird rules about scholarship money and how it affects 529 withdrawals - might want to talk to a tax advisor about optimizing that situation specifically.

ugh the whole system is such a scam anyway... make kids go into debt or drain family savings just to get an education that might not even get them a good job... its all rigged

Thank you everyone for the amazing advice! After reading all your comments and checking his award letter more carefully, I see now that of the $5500 offered, only $3500 is subsidized and the rest is unsubsidized. We're going to use the 529 funds for everything and avoid taking any loans. I'll make sure to keep detailed records of all expenses for tax purposes. The idea of starting his adult life completely debt-free is just too valuable to pass up, especially since we're fortunate enough to have the 529 funds available. Really appreciate all the guidance!

Excellent decision, Diego! Starting debt-free is such a huge advantage in today's economy. One more tip since you mentioned Florida - if your son's school participates in the Florida Prepaid program or has any state-specific benefits, double-check that using 529 funds won't affect any future aid eligibility. Also, since he's got such great academic credentials (full scholarship!), keep an eye out for additional merit scholarships that might become available during his college years - sometimes departments offer smaller awards to high-performing students that can help with those "extras" like study abroad or internship expenses. Sounds like you've raised an amazing kid and made smart financial choices along the way!

Just wanted to add another perspective as someone who works in college financial planning - you're absolutely making the right call using the 529 funds! One thing I always tell parents is to also consider setting aside a small emergency fund (maybe $1-2k) from the 529 for true emergencies during the school year. Things like medical expenses, emergency travel home, or unexpected academic costs can pop up. Since your son earned such an impressive scholarship, he's clearly responsible - having a small buffer can prevent any mid-semester financial stress. Also, don't forget that 529 funds can be used for graduate school too if he decides to continue his education later. You've done an amazing job planning ahead and your son is going to have such a great foundation to build on!