Credit Scores and Business School Loan Qualification

This is true, however by paying off any outstanding debt the reporting agency will move a key derogatory (red flag) to an OK (green flag). Even so, I'm not sure that doing so changes one's overall credit score.

I have heard that it is possible to wipe a collection record off one's record by petioning the agency for extenuating circumstances (in writing) after paying them off in full. This process is lenghthy and, of course, there are no guarantees. The flipside is that with a clean(er) credit record one may be eligible for a GradPlus loan.

The big question remains: what is the cutoff point for these loans? 550? 600? 650? 700+?

Good question, and I bet the farm you're not alone. (Fess up -- how many of you have not done this???) Get that FAFSA in. From what I can tell, most schools offer merit scholarships and NOT need-based scholarships. If this is the case at your school, the FAFSA (or lack thereof) will have no effect on potential scholarships. If the school DOES offer need-based scholarships, then it's quite possible that that FAFSA does play a role. I don't know.

The timeliness of your FAFSA may affect some types of aid. For example, Perkins loans (5% APR, subsidized, a good deal) are doled out according to need, and schools generally don't have enough to give them to everyone who qualifies. Getting your FAFSA in earlier will keep you in the running before these run out.



If you have cash savings on hand, those will be counted as assets when your EFC (estimated family contribution) is calculated (after you put in your FAFSA). This isn't the end of the world, but it's something to be aware of. Deciding whether to put cash toward use X or Y isn't terribly easy. There are always pros and cons to any financial decision, and you need to decide based on your own goals and comfort levels.

One way to look at it is like this: let's say you put that savings into a mutual fund at 5% and then end up getting a private loan at 9%. Hmm, you're going to pay more on that loan while you're in school than you're going to make on the interest on the mutual fund. (Not to mention the life of the 9% loan.)

On the other hand, it's never a good idea to be completely without savings, in case an emergency happens. This is particularly true for those who struggle with credit card use -- using those things again during an emergency can be the first step down that slippery slope. And then if you really want to buy a home right out of b-school, you'll certainly want to have a down payment of some kind.

As you can see, I tend to be fairly conservative about savings (not investing, but about saving). This probably stems from the people I work with, most of whom tend to have low to moderate incomes and have never managed to put money aside. Any small upset, like a sudden car repair, becomes a major financial catastrophe. So take what I have to say with a major grain of salt.

Also, keep in mind that there are probably many variables in your situation that I don't know about. I just threw some generalities at you.

GMATT is right - paying off a collection will not raise your score. However, many lenders -- particularly mortgage lenders -- won't lend to you if you have an outstanding collection. They just won't. There's a difference between "good" and "clean." Good means you have a solid score. I sometimes see people with very good scores, in spite of an outstanding collection. However, a mortgage lender may not help them because the report isn't clean: there are collections outstanding. Seriously, pay those off. And I doubt that many of you would have serious numbers of collections. I can't speak for all lenders, but most of them understand that a medical bill or two might get away from you. Just pay it off, and assuming you have other trade lines in good standing, no one is going to freak out.



Let me get back to you on that. I put a call into my people.

I called my current servicer who also services Grad PLUS loans. I am not at all surprised to report that they didn't want to give much info -- a bit like the admissions director saying, "There is no cut-off on the GMAT score...blahblahblah."

But here's what I could gather: It sounds like the score is less important than the history. She said that if there are questions -- late payments, collections, being over the limit -- they send the application to the lender*, who will then make the approve/deny decision. If it's fairly minor, it's not a big deal. If your black marks are more serious/numerous, they may not lend.

I have to say, though, that it doesn't much matter. You've got time; if you're worried about your credit, fix it now. Pay off collections. Pay down high-balance cards. If your history is scanty, open a small beginner loan -- share secured if need be -- and make sure you always pay on time.

* Most student loans - the federal ones, anyway - have separate servicers and lenders.

Aaudetat,

Thanks for the advice. I am quite conservative when it comes to finances....you need to be when you work in non-profit. I wish I was getting some money to go to Michigan but I'm still not complaining. The main issue for me was if I should go all loans and keep my savings in a conservative mutual fund for the next 2 years or if I should go with a mix of loans and savings to fund school. It's not something I'm overly worried about just wanting to set up my budget now. I think I will use a mix and also some of my savings to pay down the interest on the loans so the interest doesn't build up....I thought someone mentioned that as a good idea. Thanks for the thoughts

Here's the "when all else fails and you gotta come up with $30K cash in 72hrs" contingency option. I can't comment about the interest rates though

https://www.loantolearn.com/products/mba_loan_facts.asp

Aaudetat,

BIG THANKS!!!

I have no problem covering the tuition and estimated living expenses through scholarship and Stafford loans. However, I am very confused as to how one covers car payments and credit card debt through the two years without income. I know it is illegal to direct education loans to such expenses, but I also find it hard to believe that no one has ever attended grad school who hasn't owned their car in full or had zero credit card debt. With the clock ticking, there is no way I'll have everything paid off by August. The financial aid person at my school said she wasn't sure how other students handled this...

Help, please? I'm freaking out about this. Also, I know federal loans can't be taken out over the school's estimated expenses. My particular school's estimate seems paltry at best...can private education loans be taken out to cover expenses above the estimated amount, or are these too capped off at what the school estimates?

Thanks for any help...

Pardon my frankness, but approximately how much credit card debt are we talking about? Perkins will offer 6K a year (whoopy doo!) and there are several private banks/institutions out there that will readily loan MBA students up to 50K at a time. Problem is that you must start repaying the loan, plus interest, shortly after the funds are disbursed. Also, when you say Stafford loans are you including Stafford Plus loans?

Guys, I decided to bump this. As folks start hearing about decisions, they start thinking about money....

Keep in mind, this info is pre-meltdown, but still a good place to start.

Aau! Long time! Hope all is well.

Anyway, I tried to go for a Sallie Mae private loan and was rejected unless I had a co-signer and even then would have to pay 7-11% rates. I have a pretty strong credit score, but my downfall was that I had some 0% APR credit card revolving balances at the moment (which I'm earning some interest putting the money in the bank). So be careful out there. everything except for Federal and PLUS loans will ding you with any credit "blemish" you may have.

Yeah, I'm a bit worried for folks who need the non-federal loans. It's hard to get a handle on just how much the credit markets (for student loans) have tightened up.