Credit hit of loan for kid's college
Consider the impact of a parent loan on your ability to borrow for other things.
NEW YORK (Money Magazine) -- Q. It looks as if we will need to take out a $12,000 PLUS loan to cover the cost of our son's college tuition this year. How will that affect our ability to borrow for other things? -- G.S., Montclair, N.J.
Penelope Wang, senior writer, says:
A. The parent loan for undergrad students, or PLUS loan, can erode your borrowing power in two ways: by increasing your debt-to-income ratio and by lowering your credit score. While you'll probably be able to refinance or get a new mortgage, with a higher debt-to-income ratio you may not be able to borrow as much for a new car.
More important, a lower credit score could cause you to pay more interest on any type of loan you take out.
The good news is that you don't have to sweat this immediately; the PLUS loan won't be included in your credit score until you begin repayment.
That gives you a window of anywhere from 60 days to the entire time your child is in college plus another six months, depending on which repayment option you select.
And a PLUS is still a smarter choice than private loans, which generally have much higher interest rates.
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