<p>D is a sophomore. Her package includes Perkins, subsidized Stafford, and unsubsidized Stafford loans. Her school requires her to accept the unsubsidized loans in order to get the Perkins, so we did that freshman year, and she has been paying the interest on the unsubsidized loan. If not for the school requirement, we would not have taken the unsubsidized loan at all, and just paid that amount out of assets.</p>
<p>We are wondering whether we should just go ahead and pay off the unsubsidized loan from freshman year now, and if that will raise any red flags on next year's FAFSA. Either in a general sense (as in, if you could pay off a loan early, maybe you don't need financial aid), or specifically if she would be required to report that loan payoff as untaxed income to her (a bill paid on her behalf).</p>
<p>It's probably relevant to mention that her dad and I are divorced. FAFSA is based on me. Dad is able to contribute, but so far we have avoided him actually paying anything because we are trying to spend D's assets first, as well as tap out her pre-divorce 529 account. So perhaps the answer to the untaxed income question depends on who pays off the loan?</p>
<p>If paying off that loan from last year now is a smart move, then the next question is what would stop us from accepting this year's unsubsidized Stafford (again, to get the Perkins), and then paying it off right away? It seems kind of pointless for the school to require the unsubsidized Stafford if it can just be immediately paid off, so I wonder if we are missing something.</p>
<p>Happy to provide more info if something is unclear.</p>
<p>It will not raise any red flags. You can do that. I’m not sure I would as long as your D is paying the interest as she goes. Paying it off at the end of school may look better on her credit report. I’ll defer to other posters who have more experience here.</p>
<p>Only late payments will affect a credit report; paying as agreed or paying early shows as paying as agreed.</p>
<p>Can you accept the loan and then never take it out? If you must take it out, but repay within a short time, I believe they back out all origination fees and charges. If you really don’t need the loan, I’d pay it back immediately and avoid the charges, however small they may be.</p>
<p>Thanks for the replies. Specifically, I’m wondering what happens when we file next year’s FAFSA if (for example) her dad pays off the unsubsidized loan. It seems to me that if he does, she then has to report it as a bill paid on her behalf. If that is true, what would be the effect on EFC, and thus her package for next year? </p>
<p>And further, is it different if I pay off the loan instead of her dad, since the FAFSA is based on my income and assets and she is a dependent? Is it still considered a bill paid on her behalf that must be reported? Or am I entirely wrong about all of this?</p>
<p>Seems dumb to keep the loan if we don’t have to, but I don’t want to jeopardize her work-study or other aid by paying it off in the wrong way.</p>
<p>If the dad is a NCP and pays money on her behalf, it’s considered child support. YOU, as the custodial parent, can pay it or pay anything for her without it affecting the FAFSA as your income is reportable on the FAFSA–it’s assumed you pay for your daughter’s things. Since the dad’s income is not except as child support, anything he gives is supposed to be reported.</p>
<p>if the dad is an NCP, he can gift it to mom who then pays it…no reporting needed.</p>