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Qualifying for Student Loans After Bankruptcy

June 14, 2010

Many students are unable to attend college without federal financial aid.  Fortunately, a bankruptcy filing does not affect a student’s ability to obtain need-based financial aid.  For most students that means Pell Grants and Stafford Loans, both subsidized and unsubsidized.   Your credit is not considered in determining your financial need to receive Pell Grants and Stafford Loans and your bankruptcy filing does not disqualify you from receiving need-based financial aid.  Pell Grants and Stafford Loans are the two most common forms of financial aid to undergraduate college students. 

      Stafford Loans during a Chapter 13 bankruptcy presents a problem for the student.  You will need permission from the bankruptcy trustee and bankruptcy court to incur additional debt.  These requests are handled on a case-by-case basis, so consult with your bankruptcy attorney if you want to take loans to attend school during a Chapter 13 bankruptcy. 

      Credit-based financial aid is a different story.  This type of financial aid includes student loans from private lenders such as Sallie Mae.  Applying for credit-based loans is the same as applying for an unsecured personal loan.  Your credit history is considered and your bankruptcy will play a part in the decision to give you the loan. 

      Your credit is also considered if you are a parent applying for a parent loan like the PLUS (Parental Loan for Undergraduate Students) Loan and the Graduate PLUS (a loan for Graduate students) Loan.  These federally guaranteed parent loans are credit based and federal regulations state that a parent with a bankruptcy within the past five years is automatically disqualified from obtaining a PLUS Loan for his or her child, unless there were extenuating circumstances or the borrower obtains a creditworthy endorser. However, if you are denied a PLUS Loan, your child qualifies for increased unsubsidized Stafford loan limits.  Stafford loans remain in forbearance while the student attends school, while a PLUS Loan is subject to immediate repayment. 

      If you are a student or parent who needs money for school after a bankruptcy, speak with your student financial aid advisor and your bankruptcy attorney.  Bankruptcy can help eliminate your personal debt and free money for college, or college loan repayment.


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