How to Get a Graduate Student Loan after Bankruptcy

Graduate student loan lenders will be hesitant to extend you funding if you have entered bankruptcy in the past. There are a few mitigating factors that could reduce the impact on your ability to get a loan. If these are not present, though, then you will have to elect new strategies to attempt to gain financing, and these strategies will often mean greater risk to you and a more expensive loan.

Mitigating Factors

The most important mitigating factors that may lessen the impact of your bankruptcy are the time that has elapsed and the reason for bankruptcy. If more than five years have passed, you will already note your credit score has recovered significantly. If more than 10 years have elapsed, the bankruptcy may not even appear on your credit score, depending on the state where you reside. However, if the bankruptcy was filed in court, then it will appear in a background check, even if it was discharged or canceled. After 10 years, though, lenders will be less likely to deny you on the grounds of the bankruptcy alone.

You may find the reason for your bankruptcy is more forgivable than other reasons. For example, federal loan lenders will be more likely to allow you to borrow money if you declared bankruptcy as the result of a debilitating illness or similar fiscal emergency. You may also have a better chance at successfully sourcing a loan if you qualify based on financial need; for example, individuals from a socially disadvantaged background may have an easier time getting federal funding despite a previous bankruptcy.

Strategies to Secure a Loan

If you do not have mitigating factors, or if those factors are not significant enough to completely negate your bankruptcy, you will need to attempt more innovative strategies to get a loan. First, always include an explanation of why you previously declared bankruptcy as part of your application. Show these factors, such as a bad divorce, are no longer present to prevent you from paying a new loan in the future. Then, you will have to secure the loan against risk to the lender.

One way to reduce the risk of a loan for a lender is to offer collateral. This is often the easiest option for a bad credit borrower. You can use a car, home equity or even stock certificates as an asset for collateral. The more liquid the asset, meaning the more easily it can be turned into cash, the bigger loan you will get compared to the asset's value. For example, a home is not very liquid, so you may only get a loan for 50 percent of its value. A savings account, on the other hand, is cash. You may be able to get a loan for 100 percent or more of this value.

If you do not have collateral to secure a loan, you may need to seek a high risk loan for graduate school. In this case, you will have to use a non traditional lender, meaning not a bank. You may also have to pay higher interest rates and agree to make large monthly payments while you are still a student.

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