If you’re considering bankruptcy as a solution to your overwhelming debt, you’re likely thinking about the effects it will have on your family. For example, it will mean that your kids will also need to live more frugally. However, you’ve probably already had to make sacrifices as your financial situation has deteriorated. Bankruptcy can be the first positive step toward financial health.
One big concern that many parents considering or already facing bankruptcy have is what it will mean for their child’s college education. Whether that’s still a number of years off for your child or coming up soon, you may be wondering if your child will still be able to qualify for student loans.
Government student aid
The most common source of financial aid for U.S. college students is the Free Application for Federal Student Aid (FAFSA) program. Millions of young people and their parents are able to get the financial help they need to afford the increasing cost of a college education.
The primary requirement is that the student has a legitimate need for financial aid. That means parental income will be considered. However, since the student is the one who is responsible for paying back the loan, the parents’ creditworthiness (including bankruptcy) isn’t considered. The same is generally true for any federal or state student loan program where the student is the borrower.
PLUS loans
Where your bankruptcy (and a poor credit rating in general) would be a factor is if you applied for a PLUS loan, which is a federal loan that parents can take out to pay for their child’s college education. If your bankruptcy filing is less than five years before you apply for the loan (or if you don’t file for bankruptcy but have poor credit), you probably wouldn’t be approved unless you had a co-signer with a better credit record.
Other sources of aid
When the time comes for your child to look at affordable schools, it’s worth exploring the various scholarships and grants available. Your child doesn’t have to be an athlete. Often, having good grades and maybe some extracurricular or community-based activities is enough to get financial aid that doesn’t have to be repaid.
If you’re considering bankruptcy, it’s important to learn more about it. You may find that many of your fears are based on false information. Getting legal guidance is a good first step.
