Can You Get Financial Aid While in Chapter 13?

Being in a Chapter 13 bankruptcy won’t stop you from getting a Pell Grant, work-study, and most federal student loans, but it could make it harder to borrow PLUS Loans and private student loans.

Filing a Chapter 13 bankruptcy doesn’t mean you have to put your education on hold. You can still fill out a Free Application for Federal Student Aid (FAFSA) form and qualify for most federal student loans and Pell Grant money, depending on your personal finances. But you’ll face obstacles if you’re heading to graduate school, paying for your child’s cost of attendance, or needing to borrow private student loans.

Bankruptcy law* ordinarily prevents the U.S. Department of Education from denying debtors financial aid even if they’re in the middle of a bankruptcy proceeding. But strangely, it doesn’t stop the department from blocking parents and grad students from borrowing PLUS Loans.

Those types of loans don’t demand a good credit score, but they require student loan borrowers to have a clean credit history. If a credit check reveals they had a recent bankruptcy discharge, wage garnishment, foreclosure, and so on, the department will consider them to have an adverse credit history and deny their application unless they get a cosigner or endorser to agree to accept responsibility for the debt. Read more about borrowing Parent PLUS Loans in Chapter 13.

Similarly, private lenders are often unwilling to approve applications for people in an active bankruptcy case. Even if they were, the borrower would need permission from the bankruptcy court before taking out the loan. Getting that approval can be challenging if the monthly payments start right away.

TLDR:

• You can still fill out a FAFSA form and qualify for most federal student loans and Pell Grant money while in Chapter 13 bankruptcy, but you may have difficulty borrowing PLUS Loans or private student loans.

• The U.S. Department of Education can’t deny debtors financial aid because of bankruptcy, but they can block parents and grad students from borrowing PLUS Loans if they have an adverse credit history.

• Private lenders are often unwilling to approve applications for people in an active bankruptcy case, so it may be difficult to find a loan after filing Chapter 13.

* The anti-discrimination rule appears in 11 USC § 525(c) of the Bankruptcy Code. Section 428B(a)(1)(A) of the Higher Education Act of 1965 provides that PLUS Loan borrowers may not have an adverse credit history.

Related: How to Get Financial Aid After Filing Bankruptcy

It’s possible to get a student loan after filing Chapter 13, but it may be more difficult than before bankruptcy. You’ll still be able to borrow Direct Subsidized and Unsubsidized Stafford Loans to pay for undergrad. But if you’re a parent or graduate student, you’ll need to get a loved one to endorse the loan. Otherwise, you’ll need to find a private lender willing to look past your recent bankruptcy filing and poor credit score to give you a loan — hopefully at a fair interest rate. Good luck!

Related: Can You Get Financial Aid While In Chapter 7 Bankruptcy?

No matter which type of bankruptcy you file, you’ll leave bankruptcy owing the student loan debt you carried into your case. The discharge order you got from the court wiped out your medical bills, personal loans, and credit card debt, but it didn’t get rid of your education loans. To get that kind of debt relief, you’ll need to file a Complaint to Determine the Dischargeability of Student Loan Debt.

Related: How to File an Adversary Proceeding for Student Loans?

Your bankruptcy attorney can help you file that lawsuit, or you can do it yourself. In it, you’ll want to show the judge that your financial situation prevents you from making your student loan payments while maintaining a minimal standard of living for yourself and your dependents. You may also need to show that you applied for loan consolidation, sought deferments and forbearances, switched to an income-driven repayment plan, tried to refinance, and otherwise made a good-faith effort to repay your loans, depending on where you live. Read more about the Brunner Test.

Learn More: Can Student Loans Be Discharged in Bankruptcy?

Filing bankruptcy doesn’t disrupt your eligibility for most financial aid. Many students qualify for grants, loans, and other forms of financial aid while in Chapter 13. But once your case ends, the federal government can cut off your access to PLUS Loans for having an adverse credit history — a recent bankruptcy discharge.

If you’re having difficulty paying for school, find an endorser willing to share responsibility for the debt or find a lender willing to lend you private student loans.

UP NEXT: How to Prove Undue Hardship for Student Loans?