How will my son's federal loan app affect my credit?

[kroberts67]

I've been gardening and being really good.  My son is now needing to submit the loan paperwork for various federal loans as he transfers to college in January.  One of the loans I will need to co-sign and that is fine, but I've not familiar with these or how they pull credit.  

I know it needs to be done but dread the INQ, I didn't realize until he told me today that yes there is a credit check.  I was wondering if who the feds pulls (that sounds funny)...  and is it pulled once only or is it like an auto loan, will I be angrily surprise at multiple pulls...   does it depend on the federal office and is this something I can even find out by calling?

Ugh.  

[kroberts67]

I've been reading about co-signing and apparently there are much bigger issues than the INQ.  Not sure I want to take on co-signing.  

[Rikku]

On consigning in general, I would think about the following:

1) How mature is your son? Have you taught him how to manage money responsibly? How has he handled his earnings from part time jobs, allowance, etc?

2) Are you confident that he will stay in school and graduate? That might sound harsh, but you know your son. How committed is he to his education? Does he finish things that he starts?

3) What is he studying? Is he going into an in-demand field? What percentage of graduates in his major find jobs within the first 6 months? What is the starting salary? Will he need an advanced degree to be competitive?

4) How much are you consigning for? Does he have other SLs in addition to the one that you're cosigning? Will he need you to cosign for other loans in future semesters?

5) If he were to default, could you afford to pay the loan to save your own credit? If you'll be in the market for a mortgage anytime before he pays it off, how would the SL debt affect your DTI?

There are a lot of horror stories out there about cosigning for loans - SLs or other types - but you need to consider your own situation and your son's level of responsibility and capability to repay the loan. My dad cosigned for my loans and has never had a problem - same with my mother in law, who cosigned for my husband's SLs. We would never be where we are now without that help.

[Rikku]

Forgot to answer your original question! I'm not sure what CB is pulled for SLs or whether it will be more than one, but make sure you know what you're applying for. Things might have changed since I took out SLs (7-8 years ago), but I didn't need a cosigner for federal loans - only for my private loans. Interest rates for private loans have gone WAY up since I was in school, so if that's what your son is looking at, educate yourself. He may have a legitimate need to take out private loans (I did), but make sure you both understand all of the financial aid options available to him before applying for private loans.

[SCF]

Unless these are PLUS loans (whether Parent PLUS - which the parent takes out and is entirely responsible for) or Graduate PLUS loans (which are for grad school) they are not federal loans.  Other federal loans do not require a credit check or a co-signer.

It sounds like there may be private loans in play here, and you'll also want to help your child think through whether those are a good option using some of the questions Rikku provided.  If you cannot pay them back, they will make your life miserable - think long and hard before making the commitment or helping your child do so.

[Luscher]

Federal loans need no credit check you just filled out the FAFSA and get a couple thousand in unsubsidized and a couple thousand in subsidized loans, which is never enough to cover tuition. And than what I would recommend instead of taking out private loans is PARENT PLUS loans. But since you are the parent in this situation you may not want that debt on your hands. Also you may be able to apply for an additional 5000 in federal aid (I think this only apply's if the parent is denied PLUS aid.)

[jamie69]

Hi, 

I have a simlar question.  Does taking out PLUS loans (as student) affect one's FICO score?  Thank you.

[kroberts67]

Thank you all for your responses - and Rikku for your questions.  The questions are exactly where I took myself to once I spoke further with my son and found out these ARE Parent Plus loans.  He knows to avoid anything private like the plague.  It would grow each year as long as he is in school - I was under the impression originally that it was only one small starting loan he would need me to sign for - THAT I could handle paying myself if it were to happen.  It could be as high as 60k, that is not considering interest.  He said the rate is 6 or 7% but I don't know where that puts interest.  It probably depends on the length of payment, however, I can't see myself EVER being able to afford to pay that back.  I am looking at it as being MY debt, because it would be.  I can do the intitial $9k first year as I thought this was, but if it grows as he continues school, oh my gosh it scares me to death.  

Another question pertains to my credit as he attends school and the loans are not due yet/are growing - how does this affect my credit as far as UT?  I expect that if I have this debt, with the salary I make, I wouldn't be able to ever buy a house nor get loans for myself if needed, and I expect it would affect my ability to obtain further credit?

As far as approval goes, I have been paying for over a year now on a federal tax lien of my own, have it set up on direct debit and now waiting for the IRS's response from my withdrawel request.  I don't know if the lien puts me in "adverse" condition or not.  I'm meeting with his dad Friday to discuss options.

[Luscher]

@Jamie69 PLUS loans cannot be taken out by the student, it must be a parent.

@kroberts67 it will not effect your util. Only credit card debt effects your util. Also the only ding on your score will be for the new account and the hard pull. Your payments will be deferred until the student graduates or you can choose to pay the interest of monthly. (but they do not require it)

[Rikku]

---

@kroberts67 wrote:

Another question pertains to my credit as he attends school and the loans are not due yet/are growing - how does this affect my credit as far as UT?  I expect that if I have this debt, with the salary I make, I wouldn't be able to ever buy a house nor get loans for myself if needed, and I expect it would affect my ability to obtain further credit?

---

Utilization on installment loans is weighed differently than CC utilization. It is a factor in FICO scoring, but it's a very minor factor and unlikely to affect your FICO score much.

What you're concerned about, however, is your DTI (debt to income ratio), which IS important when applying for a mortgage. I have never been asked about my DTI ratio when applying for a CC or car loan, but mortgages are a different story, as you need to be under a certain percentage. If you're planning to buy a house, I would calculate what your DTI would be if you cosigned for your son's loans - and then post your question in the mortgage section of the boards.

It sounds like you should sit down and discuss your son's plan for funding college in its entirety. If you, as an adult with an established career, are concerned that YOU would not be able to repay the loans if it fell to you to do so, I would be concerned that he is getting in over his head.