Credit hit of loan for kid's college

Consider the impact of a parent loan on your ability to borrow for other things.

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By Penelope Wang, Money magazine senior writer

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.

Got a financial dilemma? Go to cnnmoney.com/helpdesk to submit questions, read the Help Desk archive, and check out Help Desk videos. And tune in to CNN's Newsroom Tuesdays and Fridays, when Gerri Willis and other experts answer your questions. To top of page

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