If you’re considering filing for bankruptcy to get out from under crushing debt, you likely already know that a bankruptcy filing will affect your ability to obtain a loan or other credit for some time. It’s something you’ll have to ease back into – carefully – as your financial situation becomes more stable.
But what if you have a teen who’s planning to go to college in a few years (or maybe sooner)? With some student loans and maybe a scholarship, you hoped that you could help them fulfill that dream – even if it meant they would live at home and attend a school nearby.
The FAFSA program
The good news is that your bankruptcy should have no effect on your child’s ability to qualify for a federal student loan. Students apply for these loans through the Free Application for Federal Student Aid (FAFSA) program. To qualify, they only have to show their legitimate financial need. That shouldn’t be a problem.
These federal loans (which used to be called Parent PLUS or Direct PLUS loans) are federal loans taken out by parents to pay for their child’s education. Parents often apply for these loans when they don’t want their child to graduate with a mountain of student loan debt.
These loans do consider a parent’s credit record since they’re the ones who will be responsible for repaying the loan. Bankruptcy within the past five years typically would make you ineligible for a PLUS loan unless you had a co-signer with good credit.
These days, a four-year private college education is out of reach for many parents. Fortunately, Texas has numerous state universities and community colleges, and there are many opportunities for scholarships, grants and other types of financial aid for students.
Your bankruptcy shouldn’t make it any more difficult for your child to attend college than if you didn’t take this step. Further, it can help put you back on solid footing and be an important lesson for your child on taking responsibility for your finances. Sound legal guidance can help you decide whether bankruptcy is the best option for your family.