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If your university, college, or higher education institution closes, you might be wondering if you can discharge student loans. It’s an especially pertinent question now, with many schools temporarily closing due to COVID-19 and many more potentially facing permanent closure depending on future enrollment. Interested in what constitutes a school closure and what other rules apply? Here is what you need to know.

What Are the Discharge Criteria?

For your loans to be forgiven from a specific institution, the institution you attend must close permanently. Although some schools are taking semesters off or closing some of their programs, students from those programs are not eligible for loan discharge. Only permant closure may qualify you.

If you were enrolled when your school permanently closed and you have William D. Ford Federal Direct Loan Program (Direct Loan) loans, Federal Family Education Loan Program (FFEL) loans or Perkins Loans and were unable to complete your program, then you might be eligible for 100% discharge of your student loans. If you had loans through a private lender, you would need to contact that lender to learn about their discharge policies.

Additionally, if you were on an approved leave of absence or your school closed within 120 days of you withdrawing from the program, you may also be eligible for a full discharge of your loans.

If you were attending an online university, the headquarters of your school must have closed to be eligible for discharge. If you attended a school that has multiple branches and one of them closed, you must have been enrolled in the branch that closed.

If you transfer to another school and do a similar program but do not transfer your credits from the school that closed, you will likely be eligible to have your loans from the original school discharged.

What Doesn’t Quality for a Discharge

Although you may meet the above criteria, it’s important to note there are a few factors that may disqualify you. For example, if your school closes and you are completing a comparable program at another school, you do not qualify for discharge. This includes if you are attending a school that is “teaching out” your program; you have transferred your credits to a different program; or other comparable means. Schools conducting teach-outs have created an agreement with another school to allows students from one program to graduate from another in the case of one school closing.

Additionally, if you completed all the coursework for the program before the school closed, you do not qualify for having your loans discharged. This is true even if you did not receive a diploma or certificate.

How to Discharge Your Loans

tassel and money

If you qualify to have your loans discharged, then you can start taking steps toward discharging them. The first step is to contact your loan servicer about the application process.

Your loan servicer will ask you to fill out an application for discharge as well as provide several documents. The application will ask for detailed personal information such as your Social Security number. It will also require specific information about the school you attended, when it closed, when you withdrew, and the details of your loans.

You will then be asked to send in your completed application and will be given approval or denial. If your discharge application is denied and you believe that you are eligible for discharge, you can petition the Department of Education for a review.

Even if you applied or started the application process, it is important to continue making payments on your loans. As you go through this process, you can also ask your servicer what to expect after the discharge approval or denial so that you can make the appropriate actions.

The Benefits of Receiving a Loan Discharge

When your loans are discharged, you will no longer have to make payments on your loans. Additionally, you will be reimbursed for the payments that you’ve already made and the record of the loan will be deleted from your credit report. This is especially helpful if you are looking to qualify for loans for another program.

What to Do if Your School Closes

If your college, career school, or university closed while you were enrolled as a student, then you have options. Even if the school closed soon after you withdrew, you can take steps to discharge your loans.

You must avoid paying companies to consolidate your student loans or to reach out to loan forgiveness services. Even if your federal loan servicer provides those services, it can interfere with your ability to have your loans discharged.

The Bottom Line

College gates closed

If you attended a school that closed while you were enrolled or if you withdrew 120 days before it closed, then the closed school discharge is available to you. The government may extend the 120 days in special circumstances. If your school closed, you should reach out to your loan servicer to see what you need to do to discharge your loans. If loans are discharged, you may need to take additional steps, and you will also be eligible to be reimbursed for payments you’ve already made and have your loan removed from your credit history.

Tips for Handling Student Debt

  • A financial advisor can help you understand what role debt, including student loan debt, plays in your overall financial plan. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool can match you with up to three local financial advisors, and you can choose the one who is best for you. If you’re ready, get started now.
  • Before you decide to go to college or go back to college, there are several factors to consider as you decide whether the expense is worth it. Part of this decision includes considering the real cost of any student loan debt; a good start is to use our free student loan calculator.

Photo credit: ©iStock.com/Darren415, ©iStock.com/DNY59, ©iStock.com/Savushkin

Ashley Kilroy Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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