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Ask Kantro: When should you apply for scholarships and financial aid?

My son will be applying to colleges this fall since he is a high school senior. Should he wait until he is accepted into a college before applying for scholarships? — Bryan R.

Your son should start searching for scholarships as soon as possible. There are scholarships with deadlines in every month of the year (more in the fall and spring than during the summer) and every year in school. There are even scholarships for children under age 13.

Since scholarship sponsors receive more qualified applications than they have funds available, to some extent winning a scholarship is a numbers game. Your odds of winning a scholarship are greater if you apply for more awards, all else being equal. (But only apply if you are qualified. You may be a wonderful person, but if you don’t satisfy the eligibility restrictions, you will be wasting your time.)

On the other hand, the Free Application for Federal Student Aid (FAFSA) cannot be submitted before January 1 because it is based on your income from the prior tax year, which ends December 31. This form is used to apply for financial aid from the federal and state government, all public and most private colleges. You should submit the FAFSA as soon as possible after January 1 because some states have very early deadlines. Some colleges also award aid according to priority deadlines. Do not wait until you’ve filed your federal income tax returns or have been accepted into a college.

I lost my job a year ago and only my husband works. We recently had to file for bankruptcy (Chapter 7). I’m going to college right now since my son is grown up and out of the house and I got financial aid from the govenment. Will I still be able to get financial aid from the government since I filed for bankruptcy? I have one more year of school left and I am worried that I won’t be able to graduate. — Lorrin Y.

Federal student aid, including the Perkins loan and the Pell Grant, may not be denied solely because of a bankruptcy filing. However, colleges may continue to consider the student’s post-bankruptcy credit history in determining willingness to repay a Perkins loan. Also, if some of the student’s federal student loans are currently in default and were not discharged by the bankruptcy, the student is ineligible for federal student aid until the loans are rehabilitated. (Federal student loans that were discharged in bankruptcy have no impact on aid eligibility.)

Federal PLUS loan borrowers, however, must not have an adverse credit history. The definition of an adverse credit history includes having had a bankruptcy discharge in the last five years. See How does bankruptcy affect PLUS loan eligibility? for additional details.

Private student loans continue to consider bankruptcy as part of their credit underwriting, and most will deny a private student loan if the borrower has had a bankruptcy within the last 7 or 10 years. Previously lenders would make exceptions for events that were beyond the borrower’s control (e.g., extraordinary medical costs or natural disasters) or to compensate for a bankruptcy with a creditworthy cosigner, but this leniency has largely evaporated due to the credit crisis. Borrowers who filed Chapter 11 are more likely to qualify for a private student loan than borrowers who filed Chapter 7 or 13.

Why does your financial aid get cut off so quickly if you don’t maintain a certain grade point average? Cutting off the aid effectively prevents you from going back to college. Shouldn’t there be at least a semester grace period to bring your grades up? — Ollie J.

Federal law requires students to be making satisfactory academic progress (SAP) in order to continue receiving federal student aid. This involves maintaining at least a C average (2.0 on a 4.0 scale) at the end of the second academic year. The rationale is that if a student is not making progress consistent with the requirements for graduation, it is a waste of taxpayer money to continue funding that student.

Most colleges will issue a warning if a student is close to or under this threshold. This is often referred to as “academic probation”. There is also an appeals process whereby a school may temporarily waive the requirements when the failure to maintain satisfactory academic progress is due to special circumstances, such as death of a relative or the personal injury or illness of the student.

Students may regain aid eligibility by improving their cumulative GPA above the C average threshold. This often requires using their own financial resources or borrowing private student loans.

Ask Kantro is written by Mark Kantrowitz, an expert on paying for college and publisher of FinAid.org and FastWeb.com, the leading free web sites for information about student financial aid, student loans and scholarships. Write to Ask Kantro at AskKantro@FastWeb.com.

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