Filing bankruptcy helps you get your debt under control, but it also significantly lowers your credit score. This will affect some types of financial aid, while others will remain unaffected. In particular, the federal government makes most types of financial aid available even to applicants who have recently filed bankruptcy.
Federal Aid Eligibility
The federal government does not include bankruptcy or any other credit-related problems in its eligibility requirements. This means that you will still be eligible to receive need-based aid, including Pell Grants, Perkins Loans, Stafford Loans and federal work-study aid. This is true regardless of whether it was you or your parents who filed bankruptcy.
Federal PLUS Loans
One type of federal loan, called the PLUS loan, is generally available for graduate students and parents of undergraduate students. However, the PLUS loan considers bankruptcy as part of the eligibility guidelines, so you might not be able to get one if you have filed bankruptcy. Anyone who has filed bankruptcy in the past five years cannot borrow unless he has a co-signer who has a good credit history. Undergraduate students whose parents are not eligible for PLUS loans can borrow up to $4,000 more in Stafford loans during their first two years of college and $5,000 more each subsequent year.
Private Loans
Private lenders who offer student loans always use the borrower's credit report to determine whether to approve the loan application. These lenders will rarely lend to anyone with a bankruptcy on his credit report. Bankruptcy remains on a credit report for seven to 10 years, depending on the type of bankruptcy. If you have filed bankruptcy, you will need a creditworthy co-signer to borrow a private student loan. Even if it was just your parents who filed bankruptcy, it could still affect your ability to get a student loan. Private lenders often require borrowers without much credit history to have a creditworthy co-signer, which is a role that a parent often fills. A parent who filed bankruptcy will not be able to co-sign, so you will need to ask another friend or relative to co-sign so you can get your private student loan.
Estimated Family Contribution
Bankruptcy will generally not affect your estimated family contribution, which is the amount that the federal government calculates that your family should be able to afford each year for college expenses. However, if you filed Chapter 13 bankruptcy, part of your income will have to go toward court-ordered bankruptcy payments, making it unavailable for use for college costs. In some circumstances, a school might adjust your available income to consider the bankruptcy payments. You must file a professional judgment appeal or financial aid review with the school to ask for the adjustment. The school is much more likely to adjust it if the bankruptcy was the result of circumstances beyond your control, such as medical bills, rather than excessive discretionary spending.
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