Whether your previous bankruptcy will affect your ability to get new student loans depends on the type of loan you are applying for. Your loan plays a role in qualifying for federal PLUS loans and private student loans, but it is not considered for other types of federal loans and scholarships. Can you apply for student loans after bankruptcy?
Federal Student Loans and Grants: Creditworthiness is not valid
For federal student loans and scholarships other than PLUS loans, the government will not consider your creditworthiness when determining your eligibility. This means that if you apply for a Stafford loan, the fact that you have previously filed for bankruptcy will not affect your eligibility.
PLUS loans
The eligibility for a PLUS loan may affect your bankruptcy petition. Your chances of approval may be greater if you follow the repayment plan set out in Chapter 13, not Chapter 7. This also applies to private student loans from private lenders. Private student loans are based on credit ratings and the likelihood of a student paying back the loan. A bankruptcy petition may affect your ability to qualify for private loans.
Private loans
Private loans are usually affected by bankruptcy, including some school loan programs. Several private loan programs will not work with a borrower who has been bankrupt in the last 7-10 years unless they have a qualified contributor. There are some exceptions, mainly if the bankruptcy was initiated outside the borrower’s control. Exceptional situations include: medical costs, natural disasters, or other mitigating circumstances.
Some bankruptcies have a greater impact on private loans than others:
- Chapter 7: total liquidation of all personal assets to pay off debts
- Lenders will less favor this borrower
- It is more difficult to get a private loan
- Can submit chapter 13 in a short time
2. Chapter 11 or 13: Reorganization bankruptcy
- With a payout plan
- It is more likely to get a loan than a borrower in Chapter 7
- The lender will check whether the borrower can file for bankruptcy again
