Will filing bankruptcy affect my ability to get student loans?
Filing bankruptcy will substantially lower your credit score, but whether or not it will negatively affect your ability to get a student loan will depend on the type of loan. The good news is that in many situations a bankruptcy filing will not hurt your chances of getting a student loan, especially if you are applying for certain types of federal loans or federal grants. If, however, you are applying for a private student loan where the issuing agency will complete a credit check, you may have difficulty obtaining the loan.
Guaranteed Stafford Loans
There are several types of federal student loan programs which will be available to students even if they have filed bankruptcy. First, there are subsidized Stafford loans which are needs based loans guaranteed by the federal government. Next, there are also unsubsidized Stafford loans. For each of these loan programs there is no credit check, which means bankruptcy has no effect on your loan eligibility.
Bankruptcy will affect private loans and Federal PLUS loans
Bankruptcy will, however, affect students who are applying for either a private loan or a Federal PLUS loan. For instance, if you apply for a private loan the lender will review your credit history and determine if you are a good credit risk. A bankruptcy filing will remain on your credit report for 10 years and will make it difficult to get a private loan. The lower your credit score, the less likely the private lender will be to lend you money for college. If they do choose to lend you money, you can expect to pay much higher interest payments to compensate them for their increased risk.
Next, if you are applying for a Federal PLUS loan the Federal government will also review your credit report and you must pass the credit check. If you are borrowing the money through the PLUS loan and have as adverse credit history it will be tough to get a student loan. Adverse credit actions include late accounts, charge-offs, write-offs of federal student loans, defaults on loans, repossessions, wage garnishments, tax liens, or bankruptcy discharges within five years.
Filed bankruptcy what next? If you have filed bankruptcy and you need to borrow money but your credit score is too low, it will take time and effort to rebuild your credit. The good news, however, is that rebuilding your credit can start right after you file bankruptcy. You do not have to wait until the bankruptcy drops from your credit report. Simple steps such as paying your bills on time, using a secured credit card, paying the balance off each month and living on a budget can all help.
Can I discharge my student debt?
Unlike other types of unsecured debts, discharging student loans is generally not allowed unless you can prove certain elements of your case. For this reason it's important to make sure you have the means to repay your students loans before you accept them.
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