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How does parents bankruptcy affect student loan eligibility for college loans? Direct loans, not gov’t ones?

Posted on January 13, 2011

Question by Dave Frederick: How does parents bankruptcy affect student loan eligibility for college loans? Direct loans, not gov’t ones?

I’m referring to the loans that the parents take out, not the ones that the students get. I think that means the Direct Plus loans.

Best answer:

Answer by T
If you are referring to the Federal Direct Loan program, then these are government loans not private ones. A parents bankruptcy will only affect any loans that your parents are applying for through the Federal Loan Program — Federal Direct PLUS Loan program. If your parents are denied a PLUS Loan, then you can borrow some additional monies through the Federal Direct Loan program in addition to what you may have been offered in your financial aid package.

I suggest contacting the Financial Aid Office of the college you will be or are currently attending to ask these questions, too.

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Comments

2 Responses to “How does parents bankruptcy affect student loan eligibility for college loans? Direct loans, not gov’t ones?”

  1. George on January 13th, 2011 1:28 am

    schools.medianewsonline.com – it provides some tips about applying to US federal and state grants for college students.

  2. Asif h on January 13th, 2011 2:10 am

    If the bankruptcy was the result of discretionary spending … that is, spending too much on stuff … the debt will NOT be taken into consideration. All the money that is earned will be considered as available income, and the amount that must be paid out monthly as a result of the bankruptcy ruling cannot be taken into consideration. We just had a girl come in yesterday about that … her mom makes lots of money, but she only actually clears $ 500/pay after taxes and bankruptcy payment. She wanted us to consider only her mom’s $ 500/pay, which we could not do. We had to consider the much-larger amount she would have had if she weren’t paying off the bankruptcy debt.

    If, however, the bankruptcy was the result of something like very high medical bills, the financial aid office may be able to assist your family with a special circumstances professional judgment. You might then be eligible for more gift aid (such as Pell or SEOG) than you might otherwise be. There is no guarantee, since this is professional judgment, but you should definitely check it out. Call your aid office and talk to them.

    How this affects you is hard to say. You cannot put the bankruptcy on the FAFSA. It must be a special appeal to the school aid office, and they will decide how to treat it. If you go to a school that meets a high percentage of need, you may get more money than you would at a school that doesn’t have a lot of grant money. Again, it’s hard to say, though.

    One thing that won’t happen: you won’t be turned down for federal Stafford student loans. The only loan you wouldn’t be able to get is a parent PLUS loan. However, if your parents apply for the PLUS & are turned down (which they would be if bankrupt), you can borrow $ 4000 (fr/soph) or $ 5000 (jr/sr) additional unsubsidized Stafford loan. That is in addition to the total sub/unsub Stafford for year in school (up to $ 5500 fr, $ 6500 soph, $ 7500 jr/sr).

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