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Justin Harelik, the Bankrate.com Bankruptcy AdviserGetting student loans after bankruptcy

Dear Bankruptcy Adviser,
Can I get a student loan after filing for bankruptcy?
-- Liz

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Dear Liz,
If you're a student and you've already filed bankruptcy, you're not alone. I counsel a lot of graduate and undergraduate students who have credit problems. It's easy to get into financial trouble in our early 20s. While it's no fun, it's better to learn certain lessons earlier when we're capable of bouncing back more easily.

Having said that, here's what's up: When you file for bankruptcy, you're still eligible for government loans, but not for private loans. These are the two basic types of loans. You should be able to qualify for government loans because these loans are based on need rather than credit.

The government wants you to improve your economic opportunities. It is more willing to grant you loans for things such as tuition and school expenses. However, there are limits to the amount of government loans you can receive each year. Thus, if you're going to a more expensive school, government loans may not be enough.

For example, many law schools cost more than $125,000 before you get your first job. Government loans will not cover the total costs of tuition and living expenses.

Private loans, however, are based on credit. I do not know of a private lender that would grant you a loan with a bankruptcy on your record. Even if you were to find a private lender to subsidize some of your educational expenses, this is not the best option. The lender could charge you a higher interest rate because of your bad credit. This can become a huge issue when you begin loan repayments because you cannot consolidate private loans with government loans when you complete your education. You will end up with two loan payments and things will start to get complicated. The government loans will have a fixed interest rate; the private loans usually have an adjustable rate. This means that you could see your private loan payment increase quickly while your salary remains the same.

If your government loans won't be enough, you might consider taking evening classes and possibly reducing school to part time and working part time. Your education would take longer to complete, but you'd have a better chance of being able to rely completely on government loans.

Just to be thorough, even if you have not filed bankruptcy, Liz, if you have any negative marks on your credit report your private loan application will likely be rejected. This can feel demoralizing, I know, but remember, you're young and a lot savvier because of your experience. Don't give up. Your education is the long-term solution to your financial woes. Keep on going and find a way to make it work.

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser go to the "Ask the Experts" page, and select "bankruptcy" as the topic.

Bankrate.com's corrections policy -- Posted: March 6, 2007
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