Your College Has Closed: How To Get Your Student Loan Discharged

Reyna Gobel, M.B.A. and M.J., is a financial and physical fitness journalist, author, and course instructor who’s published on reuters.com, weightwatchers.com, and theatlantic.com. Her CliffsNotes books on repaying student loans and paying for colleg.

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Reyna Gobel, M.B.A. and M.J., is a financial and physical fitness journalist, author, and course instructor who’s published on reuters.com, weightwatchers.com, and theatlantic.com. Her CliffsNotes books on repaying student loans and paying for colleg.

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Reyna Gobel, M.B.A. and M.J., is a financial and physical fitness journalist, author, and course instructor who’s published on reuters.com, weightwatchers.com, and theatlantic.com. Her CliffsNotes books on repaying student loans and paying for colleg.

Reyna Gobel Contributor

Reyna Gobel, M.B.A. and M.J., is a financial and physical fitness journalist, author, and course instructor who’s published on reuters.com, weightwatchers.com, and theatlantic.com. Her CliffsNotes books on repaying student loans and paying for colleg.

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Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.

Mike Cetera Editor in Chief, Forbes Marketplace U.S.

Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.

Written By Mike Cetera Editor in Chief, Forbes Marketplace U.S.

Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.

Mike Cetera Editor in Chief, Forbes Marketplace U.S.

Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.

Editor in Chief, Forbes Marketplace U.S.

Updated: Oct 23, 2020, 9:29am

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Your College Has Closed: How To Get Your Student Loan Discharged

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If your school closed down before you were able to earn a degree, it’s possible you may not have to repay your federal student loans. Applying for a closed-school loan discharge can lead to some or all of your federal students loans being forgiven. Here’s what you need to know about closed-school discharge.

What Is a Closed-School Loan Discharge?

A closed-school discharge occurs when eligible federal student loans are cancelled because your school permanently closed. Loans available for discharge include direct loans, Federal Family Education Loans (FFEL) and Perkins loans.

FFEL loans are federal loans issued by banks. These are older loans issued before federal loans came directly from the U.S. Department of Education. Perkins loans, federal student loans based on financial need with lower interest rates, also are no longer issued. Therefore, recent student loans are likely direct loans. To confirm which kinds of loans you have, log into your account at studentaid.gov.

Closed-School Loan Discharge Eligibility

You are eligible for closed-school loan discharge if the school closes while you are enrolled, although that isn’t a prerequisite. You also can ask for a discharge if you:

You may receive an automatic discharge if your school closed on or after Nov. 1, 2013, and you did not attend another school to complete your degree or program within three years of the close date. You can apply for the discharge before three years have passed. However, the discharge won’t be guaranteed.

Disqualifications

If you were able to transfer academic credits or complete your studies at another school with a comparable degree program, you are not eligible for a full discharge of your student loans. You also are disqualified if you complete your degree through a teach-out. This is an option your closing school may offer to allow you to continue studies at another school that has agreed to take on your closing school’s students.

Getting a diploma does not necessarily disqualify you from a closed-school discharge. Some schools offer diplomas or certificates to students when studies aren’t completed.

5 Steps to Apply for a Closed-School Loan Discharge

Here is what you need to do to seek discharge of your federal student loan:

  1. Contact your loan servicer. Your servicer will provide you an application similar to this one. Answer the questions carefully. An inaccurate answer could cost you a discharge you are otherwise eligible to receive. If you have any questions, contact your servicer for clarifications.
  2. Continue making payments. You may discontinue payments only if your loan servicer approves temporary forbearance. You can still request the income-driven repayment plan at this time to lower your monthly payments.
  3. If your loan is fully discharged, stop making payments. Your credit report will be cleared of default records if you defaulted on these loans. You may also receive a refund for payments you made.
  4. If your loan was partially discharged, continue to make payments.
  5. Call your state and ask about tuition recovery funds. These funds are used to refund money paid toward tuition beyond the amount discharged. It can cover the gap between the full cost of tuition and federal student loans that were discharged through the closed-school program. Let’s say the total tuition bill was $15,000. You borrowed $6,000 in federal student loans and paid the remaining $9,000 with a private student loan. The state may give you up to $9,000.

Academic Alternatives to Closed-School Loan Discharge

There may be one of several options for completing your degree. Contacting your school or representatives handing the closure is a good starting point for reviewing options.

Teach-outs

Your school may have a teach-out agreement with nearby schools that will accept your transfer credits, and/or provide the courses to finish your degree or certificate program. Since each agreement may be different, you will want to ask any questions that remain unclear to the new school or the contact listed on the agreement. You don’t have to accept the offer. You may choose to transfer credits instead or apply for the closed-school discharge.

Transferring Credits

You also can contact other schools yourself about whether you can receive transfer credits and how many. Remember to bring any extra information with you to the admissions office about syllabuses and descriptions of your coursework.

Sometimes schools won’t accept credits based on differences in course numbers. However, you may be able to get credit if you can prove that your coursework is equivalent to the course offered. If you can’t make it to a physical appointment, ask for a phone or Zoom appointment. Don’t just rely on your transcripts. Sending those without meeting with the school means you won’t have a chance to prove you completed the equivalent coursework offered at the transfer school.

Financial Alternatives to Closed-School Discharge

If you can’t get a closed-school discharge, it’s time to start looking at other options for affordable payments or partial forgiveness, including:

If you were rejected for discharge on your federal student loans, you still may qualify for your private student loans. Discuss the school closing situation with your private loan lenders, but be prepared with your income and school details when you call your lender or servicer.

Bottom Line

Applying for a closed-school discharge on your federal student loans is an option for students who don’t complete their degree or program at another school. The application is available from your federal student loan servicer. To be eligible, you must have been a student at the school when it closed, be on an approved leave of absence or have withdrawn within 120 days of the date the school closed.

This option is not available if you choose a teach-out program or transfer credits to complete your degree or program. You also can look into alternative federal student loan repayment plans and forgiveness options.