How closed school discharges work: an overview
When a college or career school shuts down, federal law gives affected students a path to cancel federal student loan debt through a closed school discharge. The relief exists to protect borrowers who paid for or began programs the school could no longer finish. This article explains who qualifies, how to apply, what to expect on your credit report and taxes, and practical steps to increase your chance of a smooth discharge.
Sources and further reading: U.S. Department of Education (studentaid.gov) and the Consumer Financial Protection Bureau (CFPB) (https://studentaid.gov/manage-loans/forgiveness-cancellation/closed-school and https://www.consumerfinance.gov/ask-cfpb/what-is-a-closed-school-discharge-en-2044/).
Who qualifies for a closed school discharge?
You may qualify if you meet one of these conditions at the time the school closed:
- You were enrolled at the school when it closed.
- You withdrew from the school within 120 days before the school’s closure (this is the standard window used by the Department of Education).
Additional rules and common disqualifiers:
- Loan types: Direct Loans, Federal Family Education Loan (FFEL) Program loans, and Perkins Loans can qualify. Private student loans do not qualify for federal closed school discharge.
- Completion or transfer: If you completed the program before the school closed, you are not eligible. Also, if you transferred the credits you earned at the closed school to another institution that accepted them toward a completed program, you generally won’t qualify for discharge.
- Teach-outs and program transfers: If your school offered a formal teach-out and you completed the teach-out or transferred into a successor program, that may affect eligibility.
If you’re unsure about your situation, start by checking your school’s official closure date and confirming your enrollment or withdrawal date. The Department of Education’s guide on closed school discharges provides the official criteria (studentaid.gov).
What loan types are covered and what is not?
Covered federal loans:
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS Loans and Parent PLUS loans (subject to eligibility)
- FFEL Program loans held by a guaranty agency or a lender
- Federal Perkins Loans
Not covered:
- Private student loans made by banks or specialty lenders
- Loans already discharged due to other reasons unless the borrower qualifies under both rules
How to apply — step-by-step (practical checklist)
- Confirm closure date and enrollment status
- Request official documentation from the school (closure notice, enrollment history) or find the closure announcement online.
- Contact your loan holder or servicer
- Closed school discharges must be requested through the holder of your loan (the entity that owns your loan) or your loan servicer. If you don’t know who holds the loan, use Federal Student Aid’s loan lookup tools (studentaid.gov).
- Complete the application or servicer form
- Your loan holder or servicer will tell you what form is needed. The Department of Education provides a closed school discharge application process summary, but your servicer may have its own form.
- Gather supporting documents
- Enrollment agreement, transcript, withdrawal letter or email, tuition statements, and any official school closure notice. Keep copies of communications and dates.
- Submit the application and follow up
- Send documents via a traceable method if mailed. Note application dates and ask for an expected response timeline. Keep records of phone calls and representative names.
- Request refunds if you made payments
- If you made loan payments after the school’s closure date but before your discharge was approved, you can request a refund. The servicer will review and, if eligible, return payments made after the eligible closure date per Department of Education guidance.
- Watch for confirmation and credit reporting updates
- If approved, the servicer will notify you and update the loan status to discharged. Check credit reports to confirm the balance is zero and that negative status changes are corrected (see below for credit issues).
Typical processing times vary but often take several months; in practice, borrowers should expect 2–6 months. Complex cases (missing records, large institutions) can take longer.
How closed school discharge affects credit and collections
- Balance and status: A discharge updates the loan to a $0 balance. The loan account may remain on your credit report with a note that it was discharged. Any prior delinquencies or collections activity may still appear unless corrected.
- If you were in default: A closed school discharge cancels the debt and should stop collection activity. If collectors continue after approval, get written confirmation of the discharge and send it to the collector and the credit bureaus.
- Correcting credit reports: If your credit reports still show a balance or incorrect status after discharge, dispute the error with the credit bureaus and provide a copy of the discharge notice.
The CFPB has consumer guidance on how school closures and loan discharges are reported and how to dispute errors (https://www.consumerfinance.gov/).
Tax treatment and refunds
- Federal taxes: As of 2025, the American Rescue Plan Act (ARPA) exclusion that made most student loan forgiveness tax-free through 2025 remains relevant. However, tax law changes periodically. Confirm current federal tax treatment with the IRS or a tax professional. The IRS and your tax advisor can confirm whether a specific discharge is excluded from taxable income.
- State taxes: States may treat discharged debt differently. Some states tax forgiven debt even if the federal government excludes it. Check your state tax agency or a tax professional.
Do not rely on the article for tax filing — consult an IRS resource or tax professional for definitive guidance.
Common mistakes to avoid
- Assuming discharge is automatic: You must apply to the loan holder; discharges are not automatically granted when a school closes.
- Missing the 120-day window assumption: The standard rule is withdrawal within 120 days prior to closure; if you withdrew earlier, you may not be eligible.
- Losing documentation: Without proof of enrollment or withdrawal dates, your application can be delayed or denied.
- Overlooking private loans: Many borrowers have both federal and private loans; private loans are not eligible for federal closed school discharge, so treat them separately.
Sample timeline and what to expect in my practice
In my experience working with borrowers over 15 years:
- Initial servicer contact and application submission: 1–2 weeks.
- Servicer review and request for documents: 2–8 weeks.
- Final determination and discharge processing: often 2–6 months total, depending on the completeness of records and borrower responsiveness.
If a borrower previously defaulted, I make sure they receive a formal discharge letter to stop garnishments or collection calls. Retain every piece of written communication.
When a closed school discharge may not be the best or only option
- If you transferred and completed a program at another school using credits from the closed school, discharge usually won’t apply.
- If you want to preserve certain benefits tied to the loan (rare), discuss options with a counselor. Most borrowers benefit from discharge because it eliminates the balance and collection pressure.
Practical tips to strengthen an application
- Save enrollment agreements, bills, and emails from the school.
- Capture the school’s closure announcement (webpage, press release, state higher ed agency notice).
- If you worked with an attorney, state agency, or student aid ombudsman, get documentation of that interaction.
- Keep a timeline of events: enrollment dates, withdrawal date, and payment dates.
Useful links and interlinks
- Applying for Closed-School Student Loan Discharge: Step-by-Step (FinHelp) — https://finhelp.io/glossary/applying-for-closed-school-student-loan-discharge-step-by-step/
- Closed School and Total/Partial Student Loan Discharge: Eligibility Guide (FinHelp) — https://finhelp.io/glossary/closed-school-and-total-partial-student-loan-discharge-eligibility-guide/
- Official federal guidance: U.S. Department of Education — https://studentaid.gov/manage-loans/forgiveness-cancellation/closed-school
- Consumer guidance: CFPB — https://www.consumerfinance.gov/ask-cfpb/what-is-a-closed-school-discharge-en-2044/
Frequently asked questions (brief answers)
Q: How long will it take?
A: Expect 2–6 months in many cases; complex records or defaulted accounts can take longer.
Q: Can I get a refund for payments I made after my school closed?
A: Yes—if the payments were made after the school’s closure date and you qualify, you can request a refund from the loan holder.
Q: Will my private loans be discharged?
A: No. Private student loans are not eligible for federal closed school discharge.
Professional disclaimer
This article is educational and not a substitute for legal, tax, or financial advice. For advice tailored to your circumstances, consult a qualified attorney, tax advisor, or student loan counselor. For official program details, see the U.S. Department of Education’s Closed School Discharge page (https://studentaid.gov/manage-loans/forgiveness-cancellation/closed-school) and the CFPB guidance (https://www.consumerfinance.gov/).
If you’d like, use the FinHelp step-by-step guide linked above to prepare your application documents before contacting your loan servicer.
