I thank the National Association of Consumer Bankruptcy Attorneys for sharing this article on bankruptcy and financial aid. People often ask me about the impact of bankruptcy on financial aid and I refer them to their school’s financial aid officer. However, it is generally the case that need based financial aid is unaffected by a bankruptcy filing. If the school or the government is handing out money based upon financial need, then that cannot have a credit based component. Private and other credit based loans could be affected. However, if you are contemplating bankruptcy then your credit is probably already bad and thus you would be ineligible for a credit based product anyway. This article provides a good discussion of some of the more in between programs such as Plus loans. The five (5) year bar on Plus loans after filing bankruptcy means you may be denied credit at a time when your credit score is high enough to justify the loan. One thing that I did not realize before I read this article is that if the parents are denied a Parent Plus loan because of bad credit then the student may get additional Stafford financing. Stafford loans are usually a better deal anyway. Not only are the interest rates lower, but Stafford loans give you more options if you run into difficulty than you have with private educational loans. I discussed this issue in an earlier blog here. In most instances bankruptcy will have little or no impact on financial aid, although there are a few programs, such as Plus loans and private student loans where bankruptcy might make a difference. However, being turned down for a Parent Plus loan because of a bankruptcy filing might be a blessing in disguise if it then makes the student eligible for additional Stafford financing.
