If you’re considering filing for bankruptcy to get out of overwhelming debt and get a fresh financial start, it’s important to consider what kinds of effects it can have on the various members of your immediate family. That means knowing the facts. You may not be aware of a potential unintended consequence. On the other hand, you may have heard things that aren’t true.
For example, what if you have a child who plans to start college within a few years? Like most American students, they will need some type of financial aid. So what does having a recent bankruptcy on your record mean for financing options for your child’s college education? Specifically, how will it affect the ability to get a government-sponsored student loan?
The FAFSA program
The Free Application for Federal Student Aid (FAFSA) program helps millions of families afford a college education for their children. The good news is that a parent’s bankruptcy (and their overall creditworthiness) has no effect on their eligibility for FAFSA. A student only needs to provide evidence that they legitimately need financial assistance. They are the ones responsible for repaying the loan – not their parents.
PLUS loans
PLUS loans used to be called Parent PLUS loans because parents apply for these government-sponsored student loans to help finance their children’s education. They generally do this so that their kids aren’t graduating with the weight of student loan debt.
Because these loans are in the parents’ names, they’re the ones responsible for repaying them. That means their credit is considered. A bankruptcy filing within the last five years would likely make you ineligible for a PLUS loan (or a private student loan) unless you have a qualified co-signer.
What’s important to remember is that your current credit score would probably disqualify you as well. Therefore, with or without bankruptcy, it likely wouldn’t be an option without a co-signer.
There are likely multiple scholarship and grant opportunities available – particularly if your child has good grades and/or some kind of special talent or skill. It’s worth looking into those options.
This is one of the concerns that is worth discussing with an experienced legal professional as you determine whether bankruptcy is the best choice for you and your family.
