Archive for the ‘Student Loans’ Category
Will bankruptcy affect a student’s eligibility for students loans?
Whatever the circumstances behind the bankruptcy, the student should talk with the financial aid administrator at the school he/she plans to attend, and explain the situation. The financial aid administrator may be able to help the student to certain loan programs or lenders.
In general, with Federal Loans bankruptcy will have no impact on eligibility. Title IV grant or loan aid may not be denied to a student who had filed bankruptcy solely on the basis of the bankruptcy. As long as there are no delinquencies or defaults on student loans currently in repayment, the student should be eligible for additional federal student loans. However, if some of the student’s federal student loans are in default, the student will not be able to get further federal aid until he/she resolves the problem.
Parents or graduates who apply for a PLUS loan or a Grad PLUS loan may be denied a PLUS loan if they have an adverse credit history. An adverse credit history includes having had debts discharged in bankruptcy within the past five years. Parents would be eligible with an endorser or the student may be eligible for an increased unsubsidized Stafford loan.
Discharging student loans in bankruptcy is very challenging. In fact, the borrower’s bankruptcy options on student loans have shrunk to a very few. Changes to the Bankruptcy Code in late 1998 made student loans non dischargeable, regardless of the age of the loan, unless the borrower can establish substantial hardship. Changes in 2005 made even private student loans non dischargeable. The only way the loan can be discharged is by proving that repayment of the loan will create an undue hardship on the debtor/borrower and his family. This standard is generally interpreted to mean that the debtor cannot maintain a minimally adequate standard of living and repay the loan. It usually requires a showing that the conditions that make repayment a hardship are unlikely to improve substantially over time. Many courts use the test for undue hardship found in the Brunner case. The Brunner case set forth the following requirements to allow one to get rid of student loans. Those requirements are: (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans. If you have student loans that you can’t repay it is always suggested that you discuss your options with a qualified bankruptcy lawyer.