Does a Parent’s Bankruptcy Affect a Student’s Ability to Obtain Financial Aid?

When parents face financial difficulties while they’re also considering how to fund higher education for their children, it can be very frustrating and confusing. With the annual cost of attendance at some universities approaching $100,000, numerous families rely on substantial financial aid. Exactly how much is available in a given situation depends on a seemingly countless series of factors, so mothers and fathers are understandably wary about making a wrong move that jeopardizes their child’s ability to attend the school of their dreams.

Generally, the fact that a student’s parents sought bankruptcy protection does not affect their eligibility for federal, state or college-based financial aid.  The Free Application for Federal Student Aid (FAFSA) does not ask about a parent’s bankruptcy history. As a result, grants, scholarships and federal student loans are not influenced by a parent’s prior bankruptcy. Students remain eligible to borrow their federal entitlement of $5,500 to $7,500 annually in Direct Stafford Loans, even if one or both parents obtained debt relief through Chapter 7, Chapter 13 or another section of the Bankruptcy Code. 

Though parental bankruptcy is not a factor considered by financial-aid departments and government agencies, there are instances where it could affect how families approach the cost of college. In some cases, mothers and fathers look to secure Parent PLUS Loans, which are credit-based federal loans. Unlike other types of education-related loans, parents, rather than students, are legally accountable for paying PLUS loans back. As with other types of loans, a prior bankruptcy might have an impact on eligibility or the terms offered to an applicant.

You might want to consider bringing your bankruptcy to the attention of the college’s financial aid office. While not required, explaining your financial situation could open the door to special consideration for additional grants, institutional loans or other forms of aid to help bridge the gap. Many colleges have discretionary funds available for families facing unique financial hardships, and a conversation with the right people could make a difference.

Jeff Field & Associates is dedicated to helping Georgia residents overcome financial challenges and achieve the life after bankruptcy that they seek. Whether this includes putting your children through college or not, we will make every legal effort to put you in the best possible position going forward. You can discuss your situation and goals with us by calling 404-381-1278 or contacting us online. We have locations in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Scottdale.