Can I qualify for student loans after bankruptcy?


Can I qualify for student loans after bankruptcy?

Several clients have recently asked me about whether they will be able to qualify for student loans after filing a bankruptcy. The good news is that when it comes to federally guaranteed student loans, filing bankruptcy has no effect on your ability to qualify. Private loans are treated on a case by case basis, but in the vast majority of cases, your eligibility is unaffected there as well.

The reason is obvious. If you are deep in debt to the point where wiping the slate clean with bankruptcy makes sense, then your credit is already severely damaged. Lenders, be they credit card companies or student loan lenders, do not want to lend to someone who is already deep in debt and therefore subject to garnishment and beholden to pay those debts. They do not want to lend money to someone only to end up being the last creditor in line, and not get paid.

In contrast, someone who has recently filed bankruptcy is going to be a clean slate. They have no other obligations to compete with their ability to repay a new student loan or credit card. This is why many of my clients receive solicitations for new credit cards and car loans even before their bankruptcy case is discharged. The reason is that lenders know what bankruptcy is. They know that bankruptcy is freeing that person from the burden of all the old, unmanageable debt that is impossible to repay. If you have decent income, and have just gotten rid of the rest of your debts, you are going to be in as good a position as you can to qualify for new loans.

And I strongly encourage people to obtain new credit cards and car loans after bankruptcy. The reason why is in order to rebuild your credit score you have to build a new on time payment history to basically overwrite the old payment history that is riddled with late payments or outright defaults. Making payments on time, holding a small balance on a credit card or paying it off each month; this is what's going to allow you to rebuild your credit score and slowly but surely you will be able to qualify for better and better terms.