What Happens if my School Closes?

 

You may be able to cancel your student loan if your school closes its doors. Whether you can cancel your loan depends on the type of loan you have and your personal circumstances.

If you have federal student loans, you may be able to discharge or cancel them after your school’s closure. This applies to students who were enrolled at the time of closure. Here are some things to know:

  • When you cancel a loan, you no longer have to pay back the amount borrowed.
  • When you discharge a loan, you are reimbursed for the amount you paid on the loan.
  • You can only discharge your loan if your school closes.
  • You won’t be able to cancel your loan if your school is sold, even if your program of study is no longer available.
  • You may be eligible for loan discharge if you’re studying online, but only if your school’s physical headquarters closed down.
  • If you decide to transfer to another school after discharging your loans, you may need to repay the discharged amount.

If your federal student loans are discharged, you may be asked to pay income tax on the amount you receive. Finding the money you need to do this isn’t always easy. If you’re worried you won’t be able to pay the required income tax, contact the Internal Revenue Service (IRS) and petition for a reduced tax bill.

Canceling Your Federal Student Loan

In order to qualify to cancel your student loan, you must have been an enrolled student within 120 days of the school’s closure. Even if you are within that margin, you will not qualify if you:

  • Completed your coursework
  • Are enrolled in a teach-out program
  • Have transferred to another school

If you meet these criteria, contact your loan holder for a loan discharge application. There is no time limit for completing your application, but it’s better to apply sooner rather than later. If you delay your application, you may struggle to show you were enrolled within the 120-day window. The sooner your discharge is approved, the sooner you can say goodbye to your loan obligations.

Also note that if you have delayed your application, the 120-day window may not apply. On July 1, 2014, the window was increased from 90 days to 120. If your school closed years ago, this smaller window may mean your student loan can’t be discharged. Federal student loans must have been fully or partially issued on or after January 1, 1986.

Hope For Students That Don’t Meet the Criteria

There may be options if you don’t meet the criteria but still feel as though you deserve cancellation or discharge.

Perhaps your school closed before you received the degree or certificate you earned. Perhaps you received your degree but are now worried about its validity because you think the school acted fraudulently. In most cases, you’ll still need to repay your federal loan.

However, if you feel the school misrepresented your course or the outcome, the official date of closure doesn’t represent the date it actually closed, or the school was fraudulent in some other way, you may be in luck. The Department of Education can make exceptions in some closed school cases. Contact the department to see whether one might be made for you.

Private Student Loans

If you have private student loans you will probably have to repay them in full, even if your school closed down before you completed your coursework.

However, some American states have special programs that help students with their financial burden if their school closes down. Some private lenders also have their own programs that help students after a school closure.

If you’re concerned about your ability to repay your private student loan following your school’s closure, contact your student loan officer promptly to discuss your options.

Completing Your Course With a Teach-Out Arrangement

A school closure might initially seem like the end of your studies, but some students complete their courses through a “teach-out” arrangement. If you accept a teach-out deal through your school or another educational institution, you will complete your studies and receive your degree or certificate as planned, even though your school has closed down.

If you accept a teach-out deal you’ll still need to repay your student loan in full, even though your school has closed. If you don’t participate in a teach-out deal, your loan may be canceled.

If your school closes, you’re likely to feel uncertain about your future. Understanding how to handle your student loans should help you feel more confident moving forward from your school’s closure.