Does Having a Car Loan Affect a Student Obtaining Financial Aid for College?

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.

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.

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.

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.

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.