Many Tennessee college students still live at home with Mom and Dad and may have no debt to worry about, let alone bankruptcy. However, even parents’ bankruptcy can affect a college student’s eligibility for student loans.
Parents may not apply for PLUS loans in the five-year period after their bankruptcy has been finalized. The wait may be even longer for private loans – up to 10 years in some cases. So what’s a student to do?
Stafford loans are still readily available. In fact, students may be able to get $5,000 more on their Stafford loan if they are denied a PLUS loan. This is beneficial because Stafford loans actually have lower rates than PLUS loans anyway. In addition to Stafford loans, students are still eligible for Pell grants and other types of federal funding.
However, funding issues can arise if the student chooses to move on to graduate school. Graduate PLUS loans are not available for five years after a bankruptcy. Graduate Stafford loans are an option, but they offer do not cover enough for private school costs.
Bankruptcy is not always easy, but it may be a way out of huge amounts of debt. However, the aftermath can last a decade or longer, which can delay big-ticket purchases and education plans. Even if a person is approved for a loan, the interest rates can be very high, causing the person to amass large amounts of debt once again. In the case of college education, the student will have to work while attending school or simply choose a less expensive school. Given these complications, it is essential that Tennessee residents contemplating bankruptcy explore all the potential ramifications of the legal process.
Source: U.S. News & World Report, “How Bankruptcy Affects College, Grad School Financing,” Kelsey Sheehy, Nov. 14, 2013