Quick summary

Closed-School and Borrower-Defense discharges are federal consumer protections that can cancel some or all of a borrower’s federal student loans when a school closes or when the school engaged in unlawful or deceptive practices. They are administered by the U.S. Department of Education (Federal Student Aid). These discharges do not apply to most private student loans and have different eligibility rules, evidence requirements, and timelines. (U.S. Department of Education, Federal Student Aid).

How Closed-School Discharge works

  • Eligibility basics: You typically qualify for a Closed-School Discharge if your school closed while you were enrolled or within 120 days after you withdrew. The Department of Education’s page for Closed School Discharge explains current application steps and eligibility details (studentaid.gov/manage-loans/forgiveness-cancellation/closed-school).
  • Loans covered: Most federal student loans held by the Department are eligible. Private loans are excluded. If you consolidated eligible loans into a Direct Consolidation Loan, that consolidation can affect timing and eligibility—check the Department’s guidance before consolidating.
  • Exceptions and teach-outs: If you completed your program through a teach-out arranged by the closing school or by transferring and finishing equivalent coursework, you normally will not qualify because you completed the program. Teach-out arrangements and lender-held loans have nuanced rules—confirm details on the Federal Student Aid site.

How Borrower-Defense Discharge works

  • Core idea: Borrower-Defense (also called Borrower Defense to Repayment) lets borrowers apply to cancel some or all federal Direct Loan debt when the school misled them, committed fraud, or violated state law tied to their loans or educational program.
  • Evidence and scope: Relief can be full cancellation, partial cancellation, or monetary relief (refunds for payments) depending on the findings. Claims rest on proving the school’s misconduct caused you financial harm—examples include intentional misrepresentation of job-placement rates, false promises about licensure outcomes, or unlawful recruitment practices. See the Department’s borrower-defense page for the current claim form and instructions (studentaid.gov/manage-loans/forgiveness-cancellation/borrower-defense).
  • Loans covered: Borrower-Defense applies to Direct Loans. FFEL or Perkins loans may become eligible if consolidated into a Direct Consolidation Loan, but consolidation can change your remedy and the timing of review. Consult the Department’s guidance before consolidating.

Who is affected / who should consider applying

  • Students enrolled at a school that closed unexpectedly.
  • Students who withdrew shortly before a closure and couldn’t reasonably complete their program.
  • Students who can document that a school misrepresented program outcomes (jobs, licensure), costs, or other material facts, or otherwise violated state law related to enrollment or repayment.

Step-by-step: How to apply

  1. Gather documentation first (see checklist below).
  2. For Closed-School Discharge: apply through Federal Student Aid’s Closed School Discharge application (studentaid.gov). You may also contact your loan servicer or the FSA Ombudsman for help.
  3. For Borrower-Defense Discharge: complete the Borrower-Defense application at Federal Student Aid (studentaid.gov/manage-loans/forgiveness-cancellation/borrower-defense). Provide a clear written statement describing the misconduct and attach supporting documents.
  4. Stay current on payments only if instructed: In some cases, the Department will place loans in forbearance while reviewing a Borrower-Defense claim; in other cases you may need to continue payments. Confirm next steps with your loan servicer and document all communications.

Evidence checklist — what to collect and submit

  • Enrollment agreements, program catalogs, and course descriptions.
  • Advertising materials, emails, web pages, or other marketing that show representations made to you (e.g., job-placement rates, salary claims, promises about licensure).
  • Correspondence with school employees (emails, texts, call logs) and records of payments (receipts, billing statements).
  • Transcripts, attendance records, withdrawal dates, and any transfer or teach-out paperwork.
  • Any state agency complaints, licensing board findings, or media coverage of the school’s problems.
  • Sworn statements or affidavits from classmates or instructors, when available.

Document everything and keep at least one digital and one physical copy. In my work helping borrowers, a complete, chronological packet of documents often strengthens the claim and speeds review.

What happens after you apply

  • Review timeline: Processing times vary. Some closed-school discharges can be processed relatively quickly, but borrower-defense claims are often complex and can take many months or longer, depending on the volume and need for investigation.
  • Possible outcomes: Full discharge, partial discharge, refund of amounts paid, denial, or negotiated relief. The Department will notify you and your loan servicer about the result and any next steps.
  • Credit reporting: After discharge, loans should be reported as discharged and no longer delinquent. Check your credit reports (annualcreditreport.com) for errors and dispute inaccuracies with the credit bureaus and your loan servicer if necessary. The Consumer Financial Protection Bureau has guidance on protecting credit during and after student loan disputes (consumerfinance.gov).

Tax and financial implications

  • Federal tax treatment: Under the American Rescue Plan Act of 2021, amounts of student loan debt forgiven are not treated as taxable income for federal tax purposes through at least 2025. State tax treatment may differ. Always verify current federal and state tax rules and consult a tax professional for your situation (Internal Revenue Service and Treasury guidance).
  • Effect on repayment programs: A discharge generally removes the loan from payment counts; if a discharged loan had been counting toward an income-driven repayment plan or Public Service Loan Forgiveness (PSLF), that credit for past payments may be affected. Consult your servicer and the Department about how a discharge interacts with other benefits.

Common mistakes and pitfalls

  • Applying without documentation: Weak or disorganized evidence makes approval less likely and slows processing.
  • Consolidating too early: Consolidation can convert non-Direct loans into eligible Direct Consolidation Loans but may complicate or delay borrower-defense relief. Review guidance before consolidating.
  • Assuming private loans are covered: Private student loans are not eligible for federal discharges—your remedies differ and typically require state-law claims or private negotiation.
  • Neglecting credit checks: Errors in credit reporting after discharge do occur; check and dispute them promptly.

Practical tips from practice

  • Start a claims folder immediately when you suspect problems. Time-stamped copies of marketing materials and correspondence are especially persuasive.
  • Save screenshots (with dates) of web pages and adverts. Online material can change or be removed; a dated screenshot preserves evidence.
  • If your claim is complex, documentable wrongdoing (e.g., falsified placement rates, fraudulent recruiting), consult an attorney experienced in borrower-defense claims. Nonprofit legal aid groups and state attorneys general may also provide help.

Related resources on FinHelp

Frequently asked questions (short)

  • How long will a borrower-defense claim take? It varies widely—expect months; complex claims can take a year or more.
  • Can private loans be discharged under these programs? No. These federal discharges apply to federal student loans; private loan borrowers must pursue other remedies.
  • Will a discharge fix my credit automatically? The discharge should be reported correctly, but errors occur—review your credit reports and dispute inaccuracies.

Where to apply and authoritative sources

Professional disclaimer

This article is educational and does not constitute legal or tax advice. Rules and administrative practices can change; for case-specific guidance contact a qualified attorney, tax advisor, or Federal Student Aid representative.

If you want, I can convert this content into an FAQ-only version, a printable checklist for claim evidence, or a fillable document template to organize your supporting materials.