How Auto Loan Debt Affects Your Student Loan Qualification

When Marisol applied for a private student loan to cover the gap between her federal aid and her tuition bill, she was surprised to learn that the $420 monthly payment on her three-year-old sedan was the reason her application stalled. Her credit score was solid, her income from a part-time hospital job was steady, and she had never missed a payment on anything. But the lender's algorithm saw her debt-to-income ratio, calculated by dividing all monthly debt obligations by gross monthly income, and flagged her as a risk. Marisol's situation is not unusual. A growing body of data from the Federal Reserve and the Consumer Financial Protection Bureau shows that auto loan debt, now topping $1.6 trillion nationally, increasingly collides with education borrowing in ways that are poorly understood by borrowers. This article examines how carrying a car loan changes your student loan qualification and what options exist when the numbers do not line up.