Federal student loans may be discharged if the school the borrower attended closes while the borrower is enrolled or soon after withdrawing.
Closed school discharges are not automatic, the borrower must apply and be approved for the discharge. To qualify, the borrower must meet certain requirements:
What Loans Qualify?
- William D. Ford Federal Direct Loans;
- Parent PLUS Loans;
- Federal Family Education Loans (FFEL);
- Federal Perkins Loans.
When Must the School Have Closed?
- When the borrower was enrolled;
- When the borrower was on an approved leave of absence;
- The borrower’s school closed within 120 days after the borrower withdrew.
When is the Discharge Not Available?
- The borrower withdrew more than 120 days before the school closed (except under exceptional circumstances);
- The
borrower is completing a comparable educational program at another school
- through a teach-out[1],
- by transferring academic credits or hours earned at the closed school to another school,
- or by any other comparable means.
- The borrower completed all the coursework for the program before the school closed, even if the borrower did not receive a diploma or certificate.
[1] A teach-out is a written agreement between schools that provides for the equitable treatment of students and a reasonable opportunity for students to complete their program of study if a school ceases to operate before all students have completed their program of study.