Can you apply for student loans or financial aid in the midst of a bankruptcy filing?
Filing for bankruptcy can have an impact on many aspects of your life but it doesn’t have to keep you or a family member from being eligible for financial assistance when applying for college.
The Good News
Anti-discrimination rules dictate that any student loan program operating under Title IV of the Higher Education Act (or similar) cannot deny a grant or a loan to a person due to bankruptcy. This extends not just to the student him/herself, but to family members who may be financially responsible for the student.
However, while Title 11 of the US Code states that loans or grants cannot be denied to someone who is currently, or who has been, in bankruptcy, it only applies to federal financial aid. This means that Title 11, also known as the Bankruptcy Code, does not apply to private financial aid.
Whether or not you or a co-signer have filed for bankruptcy, if you’re currently defaulting on existing loan repayments, additional financial aid may be denied until the missing payments are resolved. Usually, to be in good standing again requires at least nine months of consistent repayment, if not a full year.
Fill Out the FAFSA
To get the wheels moving on applying for college and receiving aid, be sure to fill out the Free Application for Federal Student Aid (FAFSA). It only takes a few minutes and will help you understand what aid you’re eligible for. If you’re currently undergoing bankruptcy, focus on federal aid for the best results.
Federal vs Private Assistance
Private loans may be a more complex issue to navigate in the midst of bankruptcy. A financial aid advisor at the college or university will be a student’s best bet for determining aid eligibility if the student themselves has filed. Often, bankruptcy in the last 7 to 10 years will preclude the issuance of a private student loan, unless there is an eligible co-signer.
Keep in mind, however, that a parent or guardian having a bankruptcy in their past should not affect the student’s eligibility for a private loan, insofar as they are determined to meet the necessary criteria for the loan in question.
Types of Federal Aid for Education
The type of Federal Aid you can receive during or after filing for bankruptcy may vary, but here’s what you may be eligible for.
Grants
A grant is financial aid that does not require repayment if you fulfill your end of the requirements, i.e. finish school in a specified time.
Scholarships
Scholarships are financial aid offered by nonprofits or private foundations and they do not require repayment. It may be based on academics, extracurriculars, or a specific field of study being pursued.
Work-Study
A federal work-study program can allow students to earn both on-the-job training and money to help pay for college tuition.
Loans
This type of financial aid does require repayment, and it is often accompanied by high-interest rates. Direct loans could be subsidized or unsubsidized, meaning they may or may not take the amount of need into consideration when allocating the loan.
Military Aid
Some students are eligible for tuition discounts or reimbursement due to their own, or a family member’s, military status.
International Aid
Students studying abroad may be eligible for federal financial aid.
Students can also look into state aid, or aid offered directly from the university, college, or career school. Funds may be available in the form of loans, grants, or scholarships on those levels as well.
If a student prematurely withdraws from school or does not meet a minimum academic requirement, federal financial aid that did not previously require repayment may do so as a result. Always be mindful of the type of financial assistance you receive, and the terms that apply. Otherwise, you may find yourself unable to repay debts incurred while pursuing your education.
Are Student Loans Discharged in Bankruptcy?
If you already have student loans, you may be wondering if they can be included in your bankruptcy filing. Typically, student loan debt will not be discharged in bankruptcy.
According to Section 523(a)(8) of the US Bankruptcy Code, educational debts are not forgiven unless it can be proven that the student loan repayment will “impose an undue hardship” on the borrower and/or dependents.
It’s important to distinguish that debt related to educational expenses is not all considered equal when filing for bankruptcy. This means that if you have credit card debt due to paying tuition or fees for education, it can potentially be discharged when filing for bankruptcy. Educational debt that falls under Section 532(a)(8) is either federally or privately issued funds from the government or a nonprofit; this debt is what is excluded from bankruptcy filings.
If you have questions about what type of debt can be consolidated or forgiven in Chapter 7 or Chapter 13 bankruptcy, contact the experts at Rulon T. Burton today. In addition to family law, we specialize in Utah bankruptcy and foreclosure.