When a college closes, many students are left in a challenging situation. More than 50 colleges have closed or merged in the previous five years. What does that mean for student loan borrowers?.
Federal loan holders may be eligible for a closed school discharge. The remaining balance on your student loan may be cancelled using this option. However, only certain students qualify for a closed school discharge.
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If you already graduated with a degree and your school closes, you won’t be eligible for a loan discharge. But if you can prove your college defrauded you in some way, you could apply for forgiveness through borrower defense to repayment.
Ready to Start Your Journey?
If your school closes, the federal student aid program provides loan discharges. Both current students and those who recently withdrew from the school are covered by the program.
You no longer owe money on your student loans after discharging the loan. For instance, if you took out a direct loan for $10,000 to attend a school that shuts down, the federal government will forgive the entire loan balance.
However, the closed school discharge program comes with eligibility requirements. Students who have experienced a school closure should be aware of their options for loan forgiveness.
How to Get a Closed School Loan Discharge
This section discusses the qualifications needed and the process for obtaining a closed school discharge.
Closed School Discharge Criteria
Borrowers with direct loans, PLUS loans, and other federal loans are eligible for a closed school discharge if they are unable to graduate due to the closure of their school. This choice applies to both students who are enrolled and those who have been granted a leave of absence.
Students who withdrew from a school 120–180 days before it closed are also covered by the discharge policy.
If students leave the school more than 120–180 days before it closes, they are not eligible for a discharge. Additionally, accepting a teach-out agreement disqualifies you from receiving a closed school discharge. These agreements enable students to transfer their credits to another institution in order to finish a similar program.
Additionally, students who graduate or finish all of their coursework are not qualified for a closed school discharge.
Closed School Discharge Through Your Loan Servicer
You can contact your loan servicer for a closed school discharge application. Visit the Federal Student Aid website to learn who your loan servicer is.
Continue making loan payments while you wait for the loan discharge process to be finished. Your application will be approved by the loan servicer, and the remaining amount on your federal student loans will be forgiven.
However, you must continue making loan payments if the loan servicer rejects your application. Contact the federal student aid program to learn about appeals if you believe the lender improperly rejected your application.
Automatic Closed School Discharge
In certain situations, you could be granted a loan discharge for a school that has closed without having to fill out an application. If your school closed between Nov. If you do not enroll in another accredited school between July 1, 2013, and July 1, 2020, the federal student aid program will process an automatic closed school discharge.
In this situation, your discharge will be started by the Department of Education. Your loan servicer will let you know when there has been a discharge.
Keep in mind that, as opposed to waiting three years for an automatic discharge, you can apply for a closed school loan discharge as soon as your school closes.
What If Your College Closed After You Graduated?
Borrowers struggling with their loan payments have several options. If you are not eligible for a closed school discharge, your options are as follows:
Can You Get a Closed School Discharge for Private Student Loans?
The closed school discharge policy only applies to federal loans. Sadly, private student loans are not eligible for a discharge from a closed school. Although lenders are not required to forgive private student loans, they may be able to help you with your payments.
Inquire with your loan provider about your options if you took out private loans and your school closed. They might suggest different options like refinancing or consolidation to make your monthly payments smaller.
Get in touch with the institution and your lender to find out your options if your school closes before you graduate. A state tuition recovery fund may be able to offer financial aid in some states.
Frequently Asked Questions About Closed School Discharges
If your school closes before you finish your program, you can discharge your federal student loans. Only certain students are eligible for this program. Your school must have closed while you were enrolled or a recent withdrawee, and you must have federal loans. Ask your loan servicer for a closed school discharge application or speak with them about your options if your school closed.
If you were a current or recently withdrawn student when the school closed, you may be eligible for loan forgiveness. You cannot accept a teach-out option at another school. And you must have federal student loans. Students who meet the requirements can apply for a closed school discharge by contacting their loan servicer.
Under some circumstances, forgiven loans count as taxable income. The Federal Student Aid Office, however, states that a discharge from a closed school does not constitute taxable income. You do not have to include the remaining balance on your federal tax return as income if your school closes and your loan servicer forgives your federal student loans. The same rules apply to loans that are forgiven due to a person’s death or disability.
Your options for financial aid may be impacted if your school loses accreditation. Federal grants like the Pell Grant and federal loans are not available to students attending unaccredited institutions. Even if your school is no longer accredited, you still have to pay back your student loans. In the event that a school is de-accredited, there is no process for loan discharge. However, as a current or recently withdrawn student, you might be eligible for a closed school discharge if your school closes.
BestColleges. com is an advertising-supported site. All school search, finder, and match results, as well as featured or trusted partner programs, are for institutions that pay us. This payment has no impact on the editorial integrity of the resource guides, school rankings, or other content on this website.
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FAQ
Can I get student loan forgiveness if my school closed after I graduated?
Yes, in either of the following scenarios, you may be qualified for a full discharge of your Federal Family Education Loan (FFEL) Program, Direct Loans, or Federal Perkins Loans: Your school closed while you were enrolled, and the closure prevented you from finishing your program.
Are student loans forgiven if the college closes?
You might be entitled to a discharge of your federal student loan if your school closes while you’re still enrolled or soon after you withdraw. Under certain conditions, your obligation to repay your loan is removed (loan discharge).
What happens if the college you graduated from closes?
Your degree is still valid even if your college closes after you graduate, but it’s a good idea to obtain a copy of the certificate or diploma you received when you finished your degree program. Your school will probably establish a procedure for obtaining your academic records while it is closing down.
Do I qualify for student loan forgiveness if I am still in school?
Yes, current students with loans are qualified for this debt relief even if they are still enrolled in college. However, the Department of Education will consider their income to determine your eligibility if a parent declares you as a dependent on their taxes.