College loan options after bankruptcy

Many Arizona residents may already be familiar with the millions of students struggling with college debt. Many of these students or their families are looking into various options to reduce their financial difficulties, including declaring personal bankruptcy. However, what are the options available for those Arizona residents who have already declared bankruptcy and are now applying for college?

Some experts believe that filing for bankruptcy may not really affect a student's loan eligibility all that much. In fact, undergraduates could actually benefit from their parent's bankruptcy. Even though undergraduates may not be able to apply for loans based on credit history immediately after bankruptcy -- for example, parents cannot apply for PLUS loans until five years after debts are discharged -- their financial situation may actually boost their chances of receiving a higher amount in other federal loans such as Stafford loans. This benefits the student greatly, because Stafford loans have lower interest rates than others. This loan option is also available for graduate students.

Bankruptcy also does not have an effect on other federal funding, such as Pell Grants and Perkins loans. It does affect private loan options for a few years after debts are discharged, but many experts advise students to stay away from those since the interest levels are high. If they can find someone to co-sign their loan, graduate and professional students can still apply for loans based on credit history.

Financial problems should not deter Arizona residents from living their life to the fullest and getting a good college degree. Bankruptcy laws exist to protect those facing financial difficulty, whatever the reason. Filing for Chapter 7 or 13 bankruptcy may be one way Arizona residents can discharge their debt and regain control of their finances.

Source: U.S. News & World Report, "How bankruptcy affects college financing," Kelsey Sheehy, Nov. 14, 2013