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How does bankruptcy affect student loans?

On Behalf of | Sep 12, 2018 | Bankruptcy

Having a higher education typically is the foundation for securing good employment and financial stability. However, it takes money to get an education. The price of schooling has gone up over the years, making it mandatory to rely on scholarships, grants and loans to earn a college degree.

If you have had a bankruptcy in years past, you may wonder how it will affect your ability to get a loan. On the other hand, if your economic state has crumbled and you are now considering filing for bankruptcy, you probably want to know what will happen to the debt. Here are the answers:

Bankruptcies prior to student loans

Any past bankruptcies do not hurt your eligibility for most federal student loans. It is illegal for the government to discriminate against you based only on that financial trait. However, your creditworthiness and income since then determine your qualification. If your parents are helping pay for your education, or if you are a graduate student, any prior bankruptcies they or you have had can eliminate eligibility for a PLUS loan.

When it comes to private loans, the matter is more complicated. It depends on the lender, loan amount, type of bankruptcy and reason for filing, among other factors. It is likely to be more challenging to secure a private loan, but not impossible. You may have to face higher interest rates or have someone co-sign the agreement.

Bankruptcy after acquiring student loans

Student debt in this nation is increasingly high and may play a role in bankruptcy rates. What happens to student debt when you file? Do you receive a discharge? Unfortunately, student debt does not qualify for discharge. In very few cases that are difficult to pursue, you may be able to lose the debt as part of your bankruptcy. The law may become more favorable in the future, reports CNBC, but until then, you may have other options available to you to get through the debt.