How to Get a Federal Student Loan after Bankruptcy

Contrary to what some people think, it is difficult to get a federal student loan after bankruptcy. Federal loans do not actually have lower loan standards than private loans do. You have to be credit worthy in order to qualify. A person who has suffered bankruptcy will have to prove he or she is credit worthy in order to be eligible, which can be very challenging in the years immediately following the financial collapse.

#1 Check the Statute of Limitations in your State

If your bankruptcy is past the statute of limitations, then it will not affect your ability to get a loan. Of course, you will have to ensure your credit has recovered. In some states, the limitation is just 5 years; however, it can extend up to 15 years in other states. If your bankruptcy is past the statue, then assure the rest of your credit report is in line. You should have no late payments for at least two years. Any default should be at least 5 years expired. Basically, the same rules that apply to seeking a private loan apply to seeking a federal loan.

#2 See if you Qualify Based on Need

Many people will be going back to school immediately following a bankruptcy in order to start a new career. If this describes you, or if your bankruptcy is still on your credit history, then you may consider looking into need based loans. The government provides both subsidized and unsubsidized loans, and the neediest individuals will get the cheapest financing through the subsidized option. If you are applying to this option, your past credit will be less important. The standards for this loan are a bit lower because it is intended to go to low income families or individuals. If you meet these criteria, some previous loan indiscretions may be forgivable.

#3 Explain the Reason for Bankruptcy

The most important thing you can do, in either a private or federal loan, is show the reason for bankruptcy was a one-time issue. If you are plagued by financial problems that did not go away with the bankruptcy, you will not be able to get a loan. If you just had a financial crisis, though, which has since been solved, you may be eligible. Examples include temporary disability, job loss or other family tragedy. Prepare a statement for your loan application describing the situation and assuring it is no longer a factor.

#4 Find a Private Lender to Fund the Loan

If you can find a private lender to fund your loan, you will immediately be more eligible for a federal guarantee on the loan. You will still have to meet basic credit requirements, and your lender will additionally need to meet federal standards. Seeking a high risk lender with bad practices will not get you a federal guarantee. But, if you have a good relationship with your bank, for example, you may be able to get a loan sourced and then guaranteed by the federal government to reduce the expense of financing.


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