Bankruptcy and Financial Aid

Paying for College
1

<p>Please refrain from making rude, judgmental comments - I didn't put myself in this predicament, I'm only looking for information.</p>

<p>My parents are currently in the process of filing for Chapter 13 bankruptcy (debt reorganization). This is as a result of my mother's compulsive gambling behavior, which she has undergone counseling for and banned herself from local casinos, however the lasting damage is done. Despite having a decent income ($100,000 combined) and consequently a rather high EFC ($24,000), they find themselves struggling to make ends meet. </p>

<p>I realize that it was my mother's choice, but it truly is a disorder. I've witnessed other family members with the same affliction.. it's like alcoholism. </p>

<p>My question is, how will this affect my financial aid? I realize that they won't be able to cosign for me for student loans (My sibling is prepared to do that, though on a much lower scale). Will colleges take this bankruptcy into consideration if I appeal to them, since my parent's finances will be handled for a court-appointed trustee and will be able to contribute very little to my college education while paying off their debt? </p>

<p>I just feel... trapped. Since I can't expect my family to contribute or accrue debt for me, nor can I even manage to take out the debt on my own behalf.
I wrote about this for my college admissions essay (and was accepted to 13/13 schools!)</p>

<p>Adding further to the problem, is both my parents are working two jobs each right now to try and pay off their debt, yet they won't really get anywhere, because it'll only increase their EFC and taxes, unfortunately.
I'm not looking for judgmental posts, because frankly I'm a high school kid who's just looking for guidance and I don't deserve that. But any help or insight that someone may have would be GREATLY appreciated.</p>

2

<p>Unfortunately, FA aid is based on what the school thinks your family is able to pay. For the most part, they do not take into consideration consumer debt or bankruptcy. If your parents have other extenuating circumstances (unreimbursed medical expenses, care of an elderly parent or child with special needs, paying for other children in college) they will take this into consideration.</p>

<p>At the end of the day, you will go where **your money **can take you. have the realistic talk with your parents to see how much they can and will realistically pay/ borrow for your education.</p>

<p>I would advise against your sibling co-signing for you for loans or you taking on a lot of debt. By the time they do this for 4 years, you both will end up limiting your own options (purchasing a car, getting a house, possibly going to grad/ professional school ) because this could be a ding regarding the credit worthiness of both of you.</p>

<p>If any of your 13 schools is offering merit money, then I would consider moving this school to the top of your list. Stack rank your schools in terms of the most affordable options. Them match them up with fit, your program (there had to be a reason that you applied to them in the first place).</p>

<p>Looking over your posts, the places where you got merit money also have a hefty price tag. Did you apply to your own state U, which may be the most financially feasible option?</p>

<p>good luck to you</p>

3

<p>Thanks for your post sybbie, I appreciate. I was actually awarded merit scholarships at all 13 schools I applied to, and I've essentially narrowed it down to two. However, even with the scholarships, I would still pay close to $15-$16,000 a year for my state school and around $20-$22,000 for 1st choice school. My state school isn't very good about awarding scholarships, so I would essentially have to pay the sticker price.</p>

<p>My brother was willing to cosign for a considerable amount, and I had to convince him not to. Family's important to each of us, and I would do the same for him. My brother is in the military and has fairly good (and steady) job, so he won't be affected as much by the credit crunch of recent. </p>

<p>Though I appreciate your advice about not accruing debt, it'll happen regardless of where I go, unfortunately. I'm willing to make sacrifices after graduation in order to make the best investment of my life - a college education.</p>

<p>And I understand that the fed. gov't expects my parents to contribute, but when they're unable to borrow money and they don't have control over their discretionary income (the bankruptcy trustee would), it seems as if there should be alternatives.</p>

<p>Thank you.</p>

4

<p>walt99 - You will need to ask the schools how they will handle the situation. Finaid.org has some discussion here
FinAid</a> | Professional Judgment | Bankruptcy</p>

<p>While bankruptcy is something that may be considered as a special circumstance it sounds like it is very much up to the financial aid officers and there may be some reluctance. However you should certainly ask.</p>

<p>You should be entitled to an unsubsidized Stafford loan which is a maximum of $3500 for a freshman. However if your parents apply for a plus loan and are rejected (which seems likely given the circumstances) you are then eligible for an additional $4,000 in Stafford loans. So that is $7500 a year which you would not need a cosigner for which I think is good even though your brother is willing. More information here
FinAid</a> | Loans | Student Loans</p>

<p>Have you considered starting off at a smaller school or community college then finishing up at a bigger school? That would reduce your debt load considerably. Your choice in the end of course but, even though I don't know you, as a parent I hate to think of you taking on that much debt.</p>

<p>Good luck.</p>

5

<p>Walt, does this mean that your parents will not contribute anything, or will contribute next to nothing? If this is the case, I really would consider community college for 2 years, and then transferring to my state school. Don't choke yourself. BTW, you seem to have a wonderful brother! I have been following most of your posts and you were given some wonderful offers, but your right, with it all you still need to pay so much more! You are a bright level headed person, and very mature. You could make CC work out.</p>

<p>Cross posted this with swimcatsmom.</p>

6

<p>Before you give up completely you should contact each of the schools that you have been accepted to and find out what their policy is. Once the court appointed trustee is involved, and court ordered payments are estabilshed, you will have more information to provide the schools that may be willing to look at your circumstance.</p>

<p>I initially thought that perhaps when determining your parents "disposable income (ie money available to pay back debt) the court would allow them to subtract a reasonable amount of money for college tuition. However, I did find this recent case, so it appears that this is not a possibility.</p>

<p>New</a> York Bankruptcy Litigation Contributing To A Child’s College Tuition Is Not Necessary, Says Bankruptcy Court</p>

<p>However, I still think that this should be attempted. All the court can say is no. Of course, even if it is allowed ( and I'm guessing the chances are thin) the court may only allow the cost of a public school tuition, and based on your numbers that would still leave a huge gap.</p>

<p>I wish you the best of luck. You are the type of kid that every parent on this forum wants to help.</p>

7

<p>Walt</p>

<p>I just found a different case where the court allowed the parents to set aside $333 per month for the child's college expenses. see page 4. I know it's a pittance but I would definately look into this possibility. </p>

<p><a href="http://www.txnb.uscourts.gov/opinions/saf/05-30964_20050825.pdf%5B/url%5D"&gt;http://www.txnb.uscourts.gov/opinions/saf/05-30964_20050825.pdf&lt;/a>
Also, could you PM me? Although I don't exactly know how that works.</p>

8

<p>Once again, I appreciate the information everyone.</p>

<p>swimcat: Yes, I've considered (And am still considering) attending a local community college, but it's also important to me to get the full college experience. If necessary, I will attend however. Also, using AP credits I should be able to knock out at least a semester, if not a full year. And I don't really to go into too much debt for undergraduate. My sister is 28 and graduated college 6 years ago and is a teacher now. She graduated with around $35,000 in debt, and I've asked her if she would change anything and she said she would make the same choice over again. I'm a pretty frugal person by nature, so I'm willing to make sacrifices after graduating. Thank you for your input and info about the Stafford loans.</p>

<p>Northeast: It's not necessarily "will not", as my parents DO want to help me, but rather may not be able to as a result of the bankruptcy. Thank you for your compliments, I really appreciate it, and I try and tell myself that I'll make the best of my opportunities wherever I go, but at times it's hard to be optimistic. Since they haven't started the actual proceedings (just began the process with a lawyer), it's hard to tell what they'll be able to contribute. Maybe nothing, maybe $2500 a year. </p>

<p>jjcddg: I can't thank you enough for researching that info for me, I would have never found it myself! I'll be sending you a PM shortly!</p>

<p>I'm not quite sure how to proceed, as my parents have just began the process of bankruptcy and meeting with a lawyer. Would you suggest contacting the schools now to inform them of the intent of filing bankruptcy or wait until the bankruptcy court actually makes their decision? Although I'm absolutely sure that they won't be able to meet a $24,000 (or maybe even a $2,400) EFC. I'm just not quite sure how to proceed/negotiate this. Should I contact the financial aid office via email, letter, or phone (in-person is out of the question)? Should I contact the admissions office and see if they can increase my merit award?</p>

<p>Thanks again everyone for your wonderful help!</p>

9

<p>you need to contact the financial aid offices now -- because you need to be able to decide where you are going to school by the deadline, which will be here sooner than you think.</p>

<p>I would suggest you contact all 13 schools and detail for them exactly what your situation is. Back it up with documents (you can ask the bankruptcy lawyer to give you a form stating that your parents are filing). Also get two letters from someone other than family members (your mother's counselor would be a good one) stating what the issue is -- your mother's gambling debts. Let the school know that you want to attend and will do in your power to make it happen, but this unfortunate situation is out of your control.</p>

<p>Then -- take a look at what you can do: work summers and earn $5000, do work-study to pay personal expenses and take out the maximum stafford loans of $7500. Tell the schools that you are willing to do this -- but you can do anything else.</p>

<p>Then you sit back and wait -- you may have 12 schools tell you that you are out of luck, but maybe one school will come through for you. Your situation does fall under the special circumstances exception -- so you just have to wait and see what each FA officer thinks about it.</p>

10

<p>I would follow hsmomstef's advice. It makes sense to me, bc you will need to make some decision. </p>

<p>Stay optimistic. You have a whole bright future ahead of yourself. Whether you go to CC, or a 4 year right away, you will make the best of the opportunities available to you. It sounds like you have a wonderful close family who is under financial strain right now.</p>

11

<p>walt, I have nothing to add to the already good advice you have received here. Just wanted to say you seem like quite a terrific young man and I wish you the best.</p>

12

<p>Sorry I haven't posted in this thread for the past few days, I've been working on drafting the appeal letter.</p>

<p>I've just finished the first draft (approximately two pages), would anyone be willing to read it?</p>

13

<p>Walt,</p>

<p>I sent you a PM</p>

14

<p>Thank you sybbie for your recommendation, I have sent her a message.</p>

15

<p>To the top.</p>

16

<p>Pretty much, need based grants and loans are going to be out of the question at most schools. Initially, your award will contain both Unsubsidized Stafford Loan (which would be taken out in your name) and a Parent PLUS loan (which your parent(s) would have to apply for. Given the bankruptcy situation, my best recommendation would be to have your mother apply for the PLUS loan. Since the bankruptcy is active, most likely the Parent PLUS loan will be denied. Have your mother print the denial page and then forward it to the financial aid office. With the PLUS loan denied, you will be offered additional Stafford Loan funds that can be taken out in your name.</p>

<p>However, unless you are receiving scholarships or non-need based grants, you will find you won't have enough funding to cover the cost at a 4-year college. You will need alternative funding, which in many cases, would require a co-signer that is credit worthy. Before asking your sibling to take out an alternative loan, make sure you have explored ALL of your scholarship options...this way the dependency on alternative loans is minimized.</p>

<p>Alternative loan funding: Make sure to look for a lender that will offer your co-signer the ability to "fall off" the loan. Many lenders will release the co-signer of their financial obligation after a certain number of on-time payments have been made. This way, your sibling won't be responsible for the loan forever. Also, make sure when you determine how much you are taking in Alternative funding that you take the least amount possible. Alternative loans are more costly and the repayment terms are not as good as Stafford Loan repayment terms.</p>

<p>You may also want to inquire about work study...this can provide some cash for those daily expenses you will incur while in school. If at all possible, try getting a work study position in the Financial Aid Office....those positions typically have work year-round AND, provided you are dependable, will offer you the opprotunity to continue work-study throughout your education. You will also place yourself on the front lines for finding out about new scholarships....typically weeks before other students. And, if you are very dependable and have a great personality, may find additional assistance available to you. Great work-study students are hard to find, especially ones that the Financial Aid Administrators like...so we tend to be a little more creative in helping our work-studies fund their education....we want them back, basically, because we find it difficult to keep anyone around too long (it is hard, boring work....but the benefits can make it worthwhile.)</p>

<p>Most importantly, be sure to explore all of your college options. For many degrees, the name of the school that is on your diploma will not make a difference in your future job offers. Therefore, compare the aid packages carefully to make sure you will be able to pay for your tuition. Even consider attending community college for a couple of years....this can save you a TON of money. Don't dismiss private 4-year's either. Some are just as affordable as publics. In fact, some are less expensive than some of the public institutions.</p>

<p>Just take a deep breathe....think about what you want for your future and remember that you can always transfer someone else as your financial standing improves.</p>

<p>Nichole</p>