If you're seeking financial aid to pay for the costs of college attendance and worry that an outstanding car loan may jeopardize your eligibility, that's one debt that may not stop you from qualifying for assistance. Depending on the type of educational loan you apply to receive, the lender may look at less than the full picture of your financial history, or may evaluate someone else's credit instead of yours.
Stafford and Perkins Loans
Government-subsidized Stafford and Perkins loans rely on the Free Application for Federal Student Aid, or FAFSA, which students and their parents fill out, to determine the amount of aid students can receive. The FAFSA doesn't consider car loans, credit cards or home mortgages. In fact, bad credit won't hurt your chances of qualifying for these forms of financial aid unless you've received a government student loan in the past and defaulted on repayment, which makes you ineligible for a new loan.
PLUS Loans
Your biological or adoptive parents can take out a Direct PLUS Loan to help you bridge gaps between the aid you receive on your own and the cost of college attendance. Approval of a Direct PLUS Loan request depends only on your parents' credit. If they fail the mandatory credit check, another family member can serve as a loan endorser and accept financial responsibility for the debt if your parents fail to repay it. The PLUS program provides assistance for dependent children, not independent students, and requires that a loan recipient enroll in at least a half-time course schedule.
Private Financing
Walk in to your neighborhood bank to apply for a student loan, and you'll be evaluated on the basis of your credit history and score. All your outstanding debts count against your ability to take on new loans. In addition, banks ask about your course of study, which can determine your future earnings. The better your credit, the lower the interest rates and fees you'll pay. If you've made timely payments on your auto loan, banks can see evidence that you handle credit wisely, which may help your cause as a borrower.
Combining Your Debt
Student borrowers with multiple loans may be able to combine them into a federal consolidation loan. If all your school debt consists of government-backed aid, you'll be evaluated solely on the basis of whether you've defaulted on any of it. Defaults can be grounds for disqualification, although you may be able to persuade a lender to reconsider. If some of your federal loans were obtained through a private financial institution, the lender may check your credit and the status of your car loan as part of your qualification for consolidation.
FAQs
Avoid consumer debt, such as high credit card balances and car loans. Consumer debt isn't counted in the need analysis formula, so there's no benefit to having a credit card balance.
Does a car loan affect getting a student loan? ›
Does owning a car affect the ability to get a student loan? In the U.S., eligibility for the Federal Stafford loan does not depend on the borrower's credit history. So, car ownership, with or without an auto loan, does not affect eligibility for this student loan.
Does a car count as an asset on FAFSA? ›
Cars, computers, furniture, books, boats, appliances, clothing, and other personal property are not reported as assets on the FAFSA. Home maintenance expenses are also not reported as assets on the FAFSA, since the net worth of the family's principal place of residence is not reported as an asset.
What assets are not considered for college financial aid? ›
Assets that are not counted by FAFSA when determining your SAI include: 401(k) and Roth and traditional IRA accounts (though withdrawals from Roth IRA accounts will be counted as untaxed income) Cash values of whole life insurance policies and qualified annuities. SIMPLE, KEOGH, and pension plans.
Does getting a student loan affect financial aid? ›
You will not get more student aid because of your debt. Using your savings to pay off your debts might improve your eligibility for need-based financial aid. Use a financial aid calculator like the one on FinAid to see if it will affect your expected family contribution (EFC).
Will a car loan affect my financial aid? ›
Avoid consumer debt, such as high credit card balances and car loans. Consumer debt isn't counted in the need analysis formula, so there's no benefit to having a credit card balance.
Does student loan debt affect your ability to get credit? ›
Having a student loan will affect your credit score. Your student loan amount and payment history are a part of your credit report. Your credit reports—which impact your credit score—will contain information about your student loans, including: Amount that you owe on your loans.
Should I empty my bank account for FAFSA? ›
If you drain the account to hide assets you are committing fraud. The FAFSA is an application and asks for asset information beyond cash. For almost all applicants the results are driven by income and requires IRS validation. Asset accumulation matters but tends to be secondary to income.
Can FAFSA see your bank account? ›
Students selected for verification of their FAFSA form may wonder, “Does FAFSA check your bank accounts?” FAFSA does not directly view the student's or parent's bank accounts.
What assets does FAFSA look at? ›
Assets considered for the FAFSA include: Money, which includes current balances of any cash, savings, and checking accounts. Non-retirement investments, like brokerage accounts, real estate (other than your primary residence), CDs, and stock options. Trust funds.
What Are the FAFSA Income Limits for 2024? Both students and their parents often think their household income makes them ineligible for financial aid. However, there's no income limit for the FAFSA, and the U.S. Department of Education does not have an income cap for federal financial aid.
What affects FAFSA eligibility? ›
Your family's taxed and untaxed income, assets, and benefits (such as unemployment or Social Security) all could be considered in the formula. Also considered are your family size and the number of family members who will attend college or career school during the year.
Should you skip assets on FAFSA? ›
Can I Skip FAFSA Questions About Assets? You can only skip FAFSA questions about assets if you meet the qualifications to do so based on your answers to other questions on the application. However, that's only because your asset information at that point doesn't affect your eligibility for federal student aid.
Does a loan count as financial aid? ›
If you apply for financial aid, you may be offered loans as part of your school's financial aid offer. When you receive a student loan, you are borrowing money to attend a college or career school.
Can I apply for FAFSA if I have outstanding loans? ›
You'll need to get out of default before you can receive federal student aid again.
Do loans count as federal student aid? ›
When you apply for financial aid, you might be offered loans as part of your school's financial aid offer. A loan is money you borrow and must pay back with interest. Student loans can come from the federal government, from private sources such as a bank or financial institution, or from other organizations.
Is it OK to skip asset questions on FAFSA? ›
If you decide to skip these questions, doing so won't affect your eligibility for federal student aid. Select “Yes” to skip questions about your assets. Select “No” to answer questions about your assets.
How do I shelter assets on FAFSA? ›
A good strategy for sheltering assets is to use them to pay down debt. Using assets to pay off credit card balances, auto loans, and mortgages can not only make the money disappear, but it also represents good financial planning sense.
How does cash on hand affect FAFSA? ›
If all money was pulled from checking and savings the day before the FAFSA was filed, the answer is zero. A nominal value of $200 or $300 may be listed, but there is no reason to include any more cash assets. Cash assets sink financial aid eligibility, but are virtually untraceable unless admitted to on the FAFSA.
Is a financial asset the same as a physical asset like a car? ›
A financial asset is a non-physical, liquid asset that represents—and derives its value from—a claim of ownership of an entity or contractual rights to future payments. Stocks, bonds, cash, and bank deposits are examples of financial assets.
