Can I get a student loan after a bankruptcy?

By ,
Ask a Lender
January 10, 2018

Key Points

Bankruptcy does not preclude you from getting a student loan

  • Federal Stafford and Perkins student loans are not contingent on a borrower’s credit history
  • An adverse credit history will disqualify you from getting federal PLUS loans
  • Private lenders will consider your complete credit history
  • Having a qualified co-signer can help improve your eligibility for federal PLUS and private student loans

Getting a student loan with a prior bankruptcy in your credit history can be challenging. Although having a past bankruptcy will limit your loan options, you may still be eligible for certain federal and private student loans.

There are three broad categories of student loans: federal subsidized and unsubsidized loans, federal PLUS loans and private student loans. Your ability to qualify for student loans depends on what type of financing you seek and how long ago the bankruptcy was filed.

Federal subsidized and unsubsidized loans

Federal Perkins loans and Direct Subsidized loans — also known as Subsidized Stafford loans — are issued based on financial need to undergraduate students only. Direct Unsubsidized loans — also known as Unsubsidized Stafford loans — are not need-based and are available to both undergraduate and graduate students.

Credit history is not a determining factor in obtaining federal subsidized or unsubsidized loans. As such, students with a prior bankruptcy should fill out the Free Application for Federal Student Aid (FAFSA) form to apply for these loans as they offer the best opportunity to obtain financing despite poor credit.

Federal PLUS loans

Parent PLUS loans and Graduate PLUS loans are not need-based. Although the borrower’s credit score is technically not a determining factor in qualifying for the loans, individuals with an adverse credit history, as defined by the U.S. Department of Education, are not legally able to obtain federal PLUS financing. 

An adverse credit history for the purposes of a PLUS loan is defined as having had a wage garnishment, tax lien, foreclosure, repossession, default determination or discharge of debt in bankruptcy within the last five years. Having a total debt of $2,085 or more that was placed in collection, written off, or at least 90 days delinquent within the past two years also constitutes an adverse credit history. With respect to a bankruptcy, the clock on the five-year disqualification window starts when the bankruptcy is filed, not discharged.

There are two situations in which a parent or student with a past bankruptcy can still access financing through the PLUS program. The individual can demonstrate that extenuating circumstances led to the bankruptcy, such as a major medical expense; or the individual can apply for the loan with a creditworthy co-signer.

If a parent does not qualify for a Parent PLUS loan because of a bankruptcy or other credit blemish, the student may file the FAFSA as an independent student — meaning the individual is not declared as a dependent on the parents’ tax forms. This may help the student — assuming he or she does not have an adverse credit history — qualify for an Unsubsidized Stafford loan that is as much as $5,000 above the standard limit. How much additional funding the student can obtain depends on how many years of college have been completed.

Private student loans

Having a previous bankruptcy does not necessarily preclude students or parents from obtaining a student loan through a private lender. If you have borrowed responsibly since the bankruptcy and rebuilt your credit score, private lenders may be willing to extend a student loan, albeit likely at a high interest rate.

While the qualification process for federal PLUS loans considers bankruptcies filed within the past five years, private lenders will see bankruptcies as long as they remain on your credit report: seven years for a Chapter 13 bankruptcy and 10 years for a Chapter 7 bankruptcy. A previous bankruptcy is a major credit red flag, and lenders will try to offset this risky profile through a higher-cost loan. Private student loan interest rates vary greatly by lender, so it is important to shop around.

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