Does Filing Bankruptcy Affect Student Pell Grants?
Filing bankruptcy has serious effects on most of your finances because you will have a hard time getting new credit for a few years afterward. However, one area bankruptcy does not affect very much is student financial aid. A student should still be eligible for Pell Grants, regardless of whether he or his parents filed bankruptcy.
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Applying
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The federal government does not ask any questions about bankruptcy on the Free Application for Federal Student Aid, which is what a student and his family submit to be considered for financial aid. Based on responses on the FAFSA, the federal government calculates the Estimated Family Contribution, which is the amount the family should be able to afford to spend on college in the next school year. Because the bankruptcy does not appear on the FAFSA, it should not affect the EFC.
Qualifying for Pell Grants
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The federal government awards Pell Grants to students who have the lowest EFCs. The maximum EFC a student can have and still get a Pell Grant changes each year, but for the 2011 to 2012 school year, it is set at $5,273. At this level, a student gets a Pell Grant for $550. As the EFC decreases, the amount of the Pell Grant increases to the maximum of $5,550 with an EFC of $0.
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What Affects Pell Grants?
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Filing bankruptcy does not affect Pell Grants, but many other measures of a family's financial standing do. The student's income and assets always affect the EFC, and in turn, affect whether he receives a Pell Grant. If the student does not qualify as independent, the FAFSA also considers the parents' income and assets when calculating the EFC. This is because the federal government expects parents to contribute to a dependent child's education if they can. The lower a student and parents' income and assets, the greater the chance that the student will get a low EFC and a high Pell Grant.
Bankruptcy Effects
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Although bankruptcy does not affect Pell Grants, it can affect the loan portion of a student's financial aid award. Federal Stafford and Perkins loans never consider bankruptcy, which gives all students a chance to borrow some money with the federal government's low interest rates and flexible repayment terms. However, federal PLUS loans for graduate students and parents of undergraduates do consider bankruptcy. Therefore, parents who have filed bankruptcy are unlikely to get a PLUS loan to help fund an undergraduate's education. Lastly, private student loans are almost entirely based on the borrower and co-signer's credit score, which will be low for anyone who has filed bankruptcy.
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