Continuing Education: Student Loans after Bankruptcy

Student loans after bankruptcy are more difficult to achieve, but there are still a number of options to get the funds needed for school. In fact, depending on the factors surrounding your bankruptcy, you may see a negligible affect on your loan options. The main factors to consider are: the types of loans you previously defaulted on, the new loans you are currently seeking, why you went bankrupt and when you went bankrupt. Then, you will have to decide if you can achieve a traditional loan, or should look into bankruptcy loan alternatives.

Type of Loans you Defaulted on

The main factor with the type of default that occurred is whether or not you had government loans. Defaulting on government loans will place you in a wholly different category than defaulting on private loans. If you used government loans for your undergraduate education and could not pay them off, you will have to pursue other resources this time around.

Type of Loans You Are Seeking

The government will not consider extending funds to a person who has previously defaulted on one of their direct loans. If you defaulted on a government loan, you need to seek a private lending source. On the other hand, government loans may be a great idea for a person who previously defaulted on a private loan. Government loans are need based. Proving you are needy is as important as proving you are credit worthy for a number of government options.

Why Bankruptcy Occurred

Lenders will consider the reasons for your bankruptcy, especially need-based lenders. If you have suffered a personal hardship that will affect your ability to pay for your education, then you may qualify for good deals on loans based on this need. Of course, you will have to show the hardship is no longer impacting your ability to make loan payments in order to receive credit in the future.

When Bankruptcy Accrued

There is a statute of limitations on bankruptcy and loan defaults in every state. If you are past this period, then you do not have to be too concerned over the affect of getting a new loan. The statute of limitations is rather long, though, as much as 15 years in some states.

Alternative Options

There are some creative options to get financing to pay for school if you have declared bankruptcy in the past.

  • 401K loans - If you have been working for some time and have money vested in a 401K, your employer may offer a 401K loan program. Not all employers have this option, and most will require you return to work with them after you complete your degree if you use this program. The loans do have high rates and other penalties.
  • High risk personal loans - High risk lenders may be willing to fund you if you can show you have the assets to back up your payments. Your interest rate will again be high.
  • Grants - Consider looking into grants and scholarships. These do not require repayment, and your credit will not affect your ability to achieve one.

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