How to Remain Eligible for Financial Aid
Many parents want to help their children pay for college. But how do you remain eligible for financial aid if you’re struggling financially and considering bankruptcy?
For some, helping their child means years of saving in preparation for when tuition bills come due. For others, it means applying for student loan programs that are available to parents with kids in college.
No matter where you are in the process and how old your kids might be, you’ve probably wondered how to remain eligible for financial aid? Can filing for bankruptcy hurt your chances of helping your child now or down the road?
Here’s what you need to know:
How to Remain Eligible for Financial Aid: Know What Affects Student Loan Qualifications Before Doing Anything Drastic
Filing for bankruptcy can affect your eligibility to qualify for some student loans. However, this doesn’t mean you can’t help your child with their education costs.
According to the Bankruptcy Reform Act of 1994, children of parents who have filed for bankruptcy cannot be denied federal student loans based on their parents’ bankruptcy history. Stafford Loan eligibility does not depend on the credit history of the loan applicant or the loan applicant’s parents.
The same is true for scholarships, state grants, and any money given to the student by the college. It doesn’t matter if and when you filed for bankruptcy, your child will not be denied access to these funding options because of your situation.
However, parents who have filed for bankruptcy are ineligible for a PLUS loan if they are applying within five years of their bankruptcy discharge. PLUS loans are the federal loan option available for parents of children in college. Unlike other student loan options, credit is a factor and those with adverse credit history don’t qualify.
In addition to bankruptcy, foreclosure, tax liens, repossessions, wage garnishment, and loan defaults within the last five years all affect whether or not you are eligible for this type of financial aid.
Denial of a PLUS Loan Means Additional Stafford Loan Funding
But there’s good news. If you are denied a PLUS loan due to your credit history or recent bankruptcy your child automatically becomes eligible for additional Stafford Loan funding. This increase is significant, too: up to $4000 in additional financing for unsubsidized loans during their first two years of college and up to $5000 during their last two years of college. This means even if PLUS isn’t an option, your child will still be eligible for the financial aid they need.
There’s more good news: This additional funding comes at a lower interest rate than PLUS loans offer. Your child will get a fixed interest rate of just 6.8%. This is more than a point lower than the PLUS program.
Is There Any Way to Get a PLUS Loan If I’ve Recently Filed for Bankruptcy?
If you still have an interest in securing a PLUS loan for your child after bankruptcy, it might be possible if you have a co-signer with good credit on the loan. The co-signer cannot be your child. However, if a grandparent or other friend or family member is willing to help out, PLUS loan funding might still be an option.
It’s also possible to appeal your PLUS loan denial. If you’re able to show you have extenuating circumstances, the loan might be approved. However, bankruptcy will rarely qualify you for an exception.
Should I File for Bankruptcy If My Child is 12 or Older?
This is a question a student loan lawyer is likely to hear. If a person is considering bankruptcy but his or her child is within that five-year range that would disqualify them for a PLUS loan, is it better to avoid bankruptcy?
Not necessarily. It all depends on your circumstances. For most people, resolving the pressing financial issues in the present time is better than putting off bankruptcy. The best way to help your child, in general, is to deal with financial matters as efficiently as possible. This is true even if this means losing an opportunity in the future. And overall, resolving your issues won’t affect your child being eligible for financial aid.
If you’d like to learn more about the PLUS loan, check out this information.
If you have questions about bankruptcy and how it could affect your child’s college funding opportunities, we can help. To schedule a free consultation, contact the Law Office of Robert M. Geller at 813-254-5696.