Student Loans after Bankruptcy

Though it may be difficult to be approved for certain loans after declaring bankruptcy, education loans are actually among the easiest to get with bad credit. In fact, bankruptcy laws prohibit lenders from refusing to give student loans after bankruptcy, if that particular blight on a person’s financial record is the only reason for denying the loan. Government loans, with a fixed low interest rate, are generally the best (and most readily available) option.

Assessing Financial History

Before applying for student loans after bankruptcy, it is important for potential borrowers to reassess their financial situations. If borrowers have any loans in default, they will want to organize a new repayment plan that will allow them to take out any additional loans as necessary. It is also a good idea for borrowers to consult with an educational institution’s financial adviser, who can provide helpful advice about which institutions might be most apt to lend to student with a history of bankruptcy.

Stafford Loans

When considering student loans after bankruptcy, it is best to look into available government loans first. One of these is the Stafford loan, which is based on financial need as opposed to credit history, and is available to students at any level of the higher education system. Stafford loans are either subsidized by the government (meaning the government pays loan interest until the student graduates), or unsubsidized (meaning the student must pay this accumulated interest after graduation). In either case, the interest rate is fixed at a fairly low rate.

Perkins Loans

The second option to consider in terms of student loans after bankruptcy is the government-backed Perkins loan. This too is based on need rather than credit, and the government also pays interest while the student is in school. This loan may actually be preferable to the Stafford loan because it also provides the student with a nine-month grace period after graduation before the first payment is required. The standards for the Perkins loan are a bit stricter, as students must demonstrate dire financial need—though this may not be difficult for anyone who has recently gone bankrupt.

Private Loans

Private lenders may sometimes offer student loans after bankruptcy; however, institutions that will do this are hard to find. Furthermore, these lenders not only require students to pay interest while still in school, but also tend to charge high interest rates ton the loans, especially to those with a bad credit history. The interest rates are also variable, meaning they can be raised by the lender at any time. However, individuals in financial straits may need to seriously consider this as an option, as government loans do not often cover educational costs in their entirety.

Because student loans are provided by the government, and based largely on need, a student who has declared bankruptcy can still be eligible to receive funding for their education.  The government actually sees these loans as a major step toward financial rehabilitation, since a better education may lead to better jobs and more financial stability.

No related posts.