The Affect Of Bankruptcy On Financial Aid

| October 26, 2014

If you have recently filed for bankruptcy and you wish to head back to school to continue your education or if you have a child that you need to pay for college for you might be wondering how that bankruptcy is going to affect your chances of being eligible for student loans or financial aid.  You will be happy to know that your previous bankruptcy will affect some student loans that you might try to apply for but it will not affect your eligibility for some other forms of financial aid.

The Bankruptcy Reform Act Of 1994

In 1994 the government put into place the Bankruptcy Reform Act of 1994.  What this act did was it prohibited the denial of government student grants and any government loans due to the student or the borrower’s past bankruptcy petitions or even the present bankruptcy petitions.  This made it possible to still borrow money for students to attend school to continue their education.  Of course with every rule comes the exception and this exception is for the Federal PLUS loan.

The Stafford Loan

If the parent has had a history that involved bankruptcy the child will still be eligible for the loan known as the Stafford loan.  This loan will not consider the borrower’s credit history at all when looking at the applicant’s personal information.

Other Options

If the parent or the student has a history that involves a bankruptcy you will be happy to know that it will not affect the eligibility of the student to apply for federal grants, state grants, scholarships or any money that comes from the school from programs such as the work study program where the student works for the school in exchange for studies.  A tuition installment payment plan is also another option that is available.  The schools will offer this option because it is difficult to have charges or school loans removed in bankruptcy.

The Federal PLUS Loan

If the borrower has applied for a bankruptcy within the last five years and the bankruptcy has been discharged the Federal PLUS loan program will not be the plan for you, as you will be denied.  It is the law that anyone who has a blemish on his or her credit history will not be eligible for this type of loan.  The blemishes will include a bankruptcy, foreclosure, repossession, tax lien, wage garnishment or any other defaults within five years and will even include any late payments on debt within the last ninety-day.  If this sounds like you this loan is not your best option.

Conclusion

As you can see from the article above even if you have been forced to file bankruptcy recently or within the last five years and still need to attend school to continue your education there is still hope for you to help pay for it.  Not all financial aid programs will be denied due to your bankruptcy.  What the first step should be is to visit your school’s financial aid office and ask what your options are.  Once you have this information then you can start from there.

 

Category: Finances

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