Will a Prior Bankruptcy Affect My Ability to Get Student Loans?

Whether a prior bankruptcy will affect your ability to get new student loans depends on the type of loan you are applying for. Your credit plays a role in eligibility for federal PLUS loans and private student loans, but it's not considered for other types of federal loans and grants.

Federal Student Loans and Grants: Creditworthiness Is Not Important

For federal student loans and grants other than PLUS loans, the government will not consider your creditworthiness in determining your eligibility. This means that if you are applying for a Stafford loan, the fact that you previously filed for bankruptcy will have no bearing on your eligibility for funds.

PLUS Loans: Your Credit Matters

There are two types of PLUS loans, those taken out by parents who are borrowing money for their children's education and those taken out by graduate and professional students. Unlike Stafford loans, you must pass a credit check in order to get a PLUS loan.

In most cases, you cannot get a PLUS loan if you have an "adverse credit history," which consists of:

• within the past five years, a foreclosure, bankruptcy discharge, deed in lieu of foreclosure, wage garnishment, repossession, tax lien
• foreclosure proceedings started
• accounts that are 90 days or more delinquent
• charge-offs or write-off of federal student loans
• defaulting on a loan, even if you later paid the claim.

You may be able to overcome one of the above events if you have "extenuating circumstances."

Private Student Loans

Not all new student loans are issued by the federal government. Banks and other financial institutions also lend money to students. In fact, the number of private student loans (sometimes called private label loans) is increasing as the cost of higher education increases (because often federal loans and grants are not enough to cover the expense of going to college).

Private student loan lenders act like other creditors – and that means your credit history is very important to them. If you filed for bankruptcy within the past ten years (bankruptcies drop off your credit report after ten years), that will negatively affect your credit score. The lower your score, the less likely you'll qualify for a private student loan. If you are able to get a loan, it will likely come with a high interest rate and fees.

However, if your bankruptcy is fairly old, and you've done a lot to rebuild your credit in the meantime, it may have little effect on your ability to get private student loans.