Bankruptcy and your child’s college financing

If you have a child who will be going to college soon or who is already enrolled, that’s likely to be one of your concerns as you consider bankruptcy.

It’s important to consider how a parent’s bankruptcy can affect these various college financing options.

Federal student loans

If a prospective college student is applying for a federal student loan, a parent’s bankruptcy should have no effect on that effort. To be eligible for federal student aid, a person must be able to show that they have a financial need. If a parent is in a position where they’re considering bankruptcy, that need is likely easy enough to prove. Even if the student themselves has filed for bankruptcy, under the law that can’t be used as the only reason for denying a loan or grant.

Federal PLUS loans

Where bankruptcy will make a difference is if you were planning to apply for a PLUS loan (sometimes called Parent PLUS loans) to help pay for your child’s college education. Anyone who has had a bankruptcy in the past five years is ineligible for a PLUS loan.

Private student loans

These are typically no one’s first choice for collegiate funding. Unlike federal student loans, they are offered based on the applicant’s credit history. Most students don’t apply for private loans unless they have exhausted all other loan, grant and other funding sources.

If a student applies for a private student loan on their own, a parent’s bankruptcy won’t be a factor unless that parent plans to co-sign the loan. Chances are that if you’re contemplating bankruptcy, offering to co-sign on a new loan wouldn’t help with the approval.

If you have a high school student who is planning to use the Free Application for Federal Student Aid (FAFSA) to apply for federal student loans at the same time 

Skip to content