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Roadblocks to Paying for College: Your Parents’ Bankruptcy

bankruptcyEntering into college can be stressful, especially when considering you financial situation. Unfortunately, there are a few things that can make financing your college career even more challenging.

Your Parents’ Influence

If you’re in any way dependent on your parents for your college tuition, then you’ve probably noticed by now that schools rely on a credit-check of your parents’ accounts.

If your parents have, at any time, declared bankruptcy or are even in the midst of it, you’re probably worrying about your ability to pay for a college.

Here are some things you’ll want to know about receiving grant money, your eligibility for government assistance and much more.

The Bankruptcy Reform of 1994

Right off the bat, we’re going to put some of your fears to rest – you’re still eligible for grant money.

The Bankruptcy Reform of 1994 ensures that you, as a student, can’t be denied federal grants because of your parents’ credit history. So, even if your parents have filed bankruptcy in the past or are undergoing the process at the time of your application, it won’t be held against you.

Thankfully this reform also ensures that you can receive scholarships to further your education. To that end, you’ll be able to receive the same benefits as students who have parents with a clear credit history. Your parents can even set up payment plans so that your transition will be even smoother.

The US Stafford Loan in particular is an example of a government loan which is always available to you regardless of your credit history.

Federal PLUS Loans and Bankruptcy

Unfortunately, there is at least one type of loan which is dependent on a good credit history from your parents. Only individuals with a clear credit history can apply for The Federal PLUS Loan. So what does this mean for you?

If your parents are denied a Federal PLUS Loan, then you may actually be eligible for a larger unsubsidized government loan. This can even take effect within the first two years of college. Students who received larger unsubsidized loans in the first two years of college have been recorded as getting up to $4,000 more right away. It’s also been reported that you can receive up to $1,000 more (in addition to the first $4,000) for your last two years.

If you have your heart set on a Federal PLUS Loan, you’ll need to find a cosigner with good credit.

Private Schools and Bankruptcy

It’s important to note, however, that private schools have different regulations for the application process and the grants which go through their institution.

Although the reform of 1994 applies across the board to federal student loans, it doesn’t apply to private school ones. Each private school retains the right to check your parents’ credit history through the past seven to ten years.

Getting Help

Applying for financial aid can be challenging. The most important thing to remember is help is always available. Contact someone in your college’s financial aid department. The staff is well-informed about school policy and may even be able to help set you up with a payment plan or a loan that fits your situation best.

If your parents are considering bankruptcy, contact a bankruptcy lawyer right away. This law professional can give you additional information about how the process will affect your college education. Sometimes, it is beneficial to consider the timing of filing bankruptcy. Maybe your parents will want to wait until after you’re enrolled.

Your education is important. Just because your parents may have had a rough spot with their credit doesn’t mean your education should have to suffer for it.

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