Quick comparison

  • Closed-program discharges = permanent cancellation of eligible federal student loan debt when the school or program closes and the borrower meets enrollment/withdrawal timing rules.
  • Economic hardship relief = temporary or conditional payment relief (deferment, forbearance, or income-driven adjustments) that usually preserves the loan balance and can allow interest to accrue.

This article explains why those differences matter, how to prove eligibility, what each relief option looks like in practice, and what to do next.

Why the distinction matters

A discharge removes principal and future scheduled payments; it’s transformative for a borrower’s finances. By contrast, economic hardship options are designed to prevent default while the borrower’s financial situation improves. Understanding this distinction avoids wasted applications and ensures you document the right events and evidence.

Author note: In my 15+ years helping borrowers navigate federal student loan relief, I’ve seen eligible closed-school discharges eliminate debts of tens of thousands of dollars, while economic hardship tools have given breathing room to borrowers facing short-term crises. Both are valuable—but they serve different needs.

Legal and program basics

  • Closed-program or closed-school discharge is a federal discharge administered by the U.S. Department of Education. It applies when a school (or a program within a school) ceases operations and a borrower was enrolled when it closed or withdrew shortly before the closure. See the Department’s guidance at studentaid.gov for current eligibility rules and the application process (U.S. Department of Education).

  • “Economic hardship forgiveness” as a formal, universal federal program is a misnomer. The federal option most commonly called “economic hardship” is an Economic Hardship Deferment (or similar hardship-based forbearance or repayment adjustment). These options suspend or reduce payments for a time but do not generally cancel loan principal. For details, see the Department of Education’s pages on deferments and hardship relief and the Consumer Financial Protection Bureau for borrower rights around servicer communications (U.S. Department of Education; Consumer Financial Protection Bureau).

Who qualifies: eligibility at a glance

Closed-Program/Closed-School Discharge:

  • Eligible if you were enrolled at the time the school (or program) closed, or if you withdrew within a certain window before closure (the Department’s guidance outlines the specific timing and exceptions).
  • Eligible loan types are generally federal student loans that were used to attend the closed school. Private loans are rarely covered.
  • You must apply and document your enrollment and the timing of the school’s closure.

Economic Hardship Relief (Deferment/Forbearance/IDR options):

  • Eligible if you meet income or employment-based thresholds (for economic hardship deferment), or if you can show short-term financial distress that meets a servicer’s forbearance criteria.
  • These programs are broadly available for federal loans but usually are temporary and often require periodic recertification.

For the Department’s official closed-school rules and the procedural steps, see our detailed explanation on how closed school discharges work: How Closed School Discharges Work for Federal Student Loans. For an overview of economic hardship options, read: Economic Hardship Deferral.

Documentation and proof you’ll need

Closed-program discharge applications require proof of enrollment and the school’s closure. Typical evidence includes:

  • Enrollment records, transcripts, or tuition bills showing you were enrolled at the school when it ceased operations.
  • Notices from the school announcing closure, published findings, or other official communications.
  • A timeline showing withdrawal date relative to the closure date, when applicable.

Economic hardship relief usually requires income documentation and statements about employment status, such as:

  • Pay stubs, benefit award letters, or unemployment documentation.
  • A completed deferment or forbearance application provided by your servicer.

Always keep copies of everything you send and confirm receipt with your loan servicer. If a servicer denies an application, ask for the denial in writing and the specific reason.

Financial and tax consequences

  • Closed-program discharges cancel the loan principal and stop future interest accrual. Under the American Rescue Plan Act of 2021, many student loan discharges were excluded from federal taxable income through tax year 2025; check IRS.gov for the latest tax treatment and state-level rules. If tax treatment changes, previously discharged amounts could have tax consequences in later years—stay informed and consult a tax advisor.

  • Economic hardship deferments or forbearances typically do not eliminate interest (unless you’re in a subsidized loan under a qualifying program), so the unpaid interest may capitalize later, increasing the total cost. These actions usually do not trigger immediate tax effects because no debt is forgiven.

Credit report and collection implications

  • A properly approved closed-program discharge should be reported to credit bureaus as a discharge, not a default. However, the mechanics depend on your servicer and reporting timelines—monitor your credit reports for accuracy and dispute any incorrect delinquency listings with the credit bureaus and your servicer.

  • Economic hardship options keep the loan in good standing when set up properly. If a deferment or forbearance is not applied on time, missed payments can damage credit. Work proactively with your servicer to avoid misreporting.

Step-by-step: what to do next

  1. Verify the event: Confirm the school or program closure date via official notices or the Department of Education’s listings.
  2. Check eligibility: Review the Department of Education’s closed-school discharge page and your loan terms. See the U.S. Department of Education guidance at StudentAid.gov for forms and instructions.
  3. Gather documentation: Enrollment records, closure notices, proof of withdrawal (if relevant), pay stubs or benefit letters for hardship claims.
  4. Contact your loan servicer: Notify them that you’re applying for a closed-school discharge or an economic hardship deferment. Follow their required procedures and get confirmation in writing.
  5. Follow up and monitor: Keep copies, track application status, and monitor your credit report for correct reporting.

If you need a walkthrough, our how-to guide explains applying for closed-school discharge step-by-step: Applying for Closed-School Student Loan Discharge: Step-by-Step.

Practical examples (anonymized)

  • Closed-program discharge: A borrower who was halfway through a certificate program that the school abruptly shut down provided enrollment statements and the school’s closure notice to their servicer. After verification, the servicer approved a full discharge, eliminating $22,000 in federal loans.

  • Economic hardship relief: A borrower who lost employment applied for an economic hardship deferment and later qualified for an income-driven repayment (IDR) plan. Their monthly payment fell to $0 for a period; however, interest accrued and capitalized when the deferment ended, increasing the balance modestly.

Common mistakes and how to avoid them

  • Mistaking a deferment for a discharge: A deferment pauses payments. A discharge cancels debt. Read the program description carefully and ask your servicer to confirm the outcome in writing.
  • Applying under the wrong program: If your school closed, apply for a closed-school discharge rather than submitting income statements for a hardship deferment.
  • Failing to document: Missing or incomplete proof of enrollment or closure can delay or deny a discharge—collect official records early.

Frequently asked questions

Q: Can I get both a closed-school discharge and economic hardship relief?
A: You can seek both, but they address different circumstances. If your school closed, a closed-school discharge is the appropriate relief. Economic hardship options are for borrowers with financial difficulty and do not replace a discharge if you qualify for one.

Q: Are private student loans eligible for closed-school discharge?
A: Usually not. Closed-school discharges are federal protections. Private loans are governed by contract law and lender policies; contact your private lender and consult an attorney or a consumer protection agency for options.

Q: Will a closed-school discharge hurt my credit?
A: A correctly processed discharge should not be treated as a default. If you see negative information, dispute it with the credit bureaus and your servicer—document everything.

Tips from a practitioner

  • Start with StudentAid.gov and request a written acknowledgment whenever you file for discharge or deferment. (U.S. Department of Education)
  • Keep copies of enrollment records and closure notices in a dedicated folder (digital and physical).
  • If a servicer is unresponsive or you encounter inaccurate reporting, contact the Consumer Financial Protection Bureau to file a complaint and retain documentation: https://consumerfinance.gov/ (Consumer Financial Protection Bureau).

Sources and further reading

  • U.S. Department of Education, Federal Student Aid: Closed School Discharge and Economic Hardship Deferment pages — see StudentAid.gov.
  • Consumer Financial Protection Bureau: borrower protections and servicer complaint resources — ConsumerFinance.gov.
  • National Consumer Law Center — resources on student loan law and consumer protections.

Professional disclaimer

This article is educational and not individualized legal, tax, or financial advice. Rules and tax treatment can change—confirm current program rules at StudentAid.gov, IRS.gov, and with your loan servicer, and consider consulting a tax professional or student loan attorney for personal guidance.