Who is Eligible for a Closed School Discharge?
Eligibility for a Closed School Discharge is specific. According to the U.S. Department of Education, you may qualify if you meet all of the following conditions:
- Your school closed while you were enrolled, or you withdrew on or after May 23, 2024, up to 180 days before the school closed. (For withdrawals before this date, the window is 120 days).
- You were unable to complete your program of study because of the closure.
- You did not transfer your academic credits from the closed school to a comparable program at another institution. If you enroll in a similar program and the new school accepts your credits, you generally lose eligibility for the discharge.
This relief applies to federal student loans, including Direct Loans, Federal Family Education Loan (FFEL) Program loans, and Perkins Loans. Unfortunately, private student loans are not eligible for this federal program, though you should contact your private lender to ask about any available options.
How to Apply for a Closed School Discharge
In many cases, the Department of Education identifies eligible borrowers and grants an automatic discharge without an application. This is most common for students who do not enroll in another school within three years of their school’s closure.
However, you should not wait to be automatically approved. If you believe you qualify, it is best to be proactive:
- Contact Your Loan Servicer: Your student loan servicer is your primary point of contact. Inform them that your school closed and you want to apply for a discharge. They will provide you with the necessary application form.
- Complete the Application: Fill out the Closed School Discharge Application accurately. You can find the form and more details on the official Federal Student Aid website.
- Await a Decision: After submitting the application, your servicer will review your eligibility and notify you of the decision. During this time, you may be able to pause payments through forbearance.
What Happens After Loan Discharge Approval?
If your application is approved, you receive significant financial relief:
- 100% Loan Cancellation: Your legal obligation to repay the discharged federal student loans is eliminated.
- Refund of Payments: Any payments you made on the loan—whether voluntary or through wage garnishment—are refunded.
- Credit Report Restoration: The servicer will report the discharge to credit bureaus, removing any negative history associated with the loan. This can help improve your credit score.
- No Taxable Income: Under current federal law, student debt discharged through this program is not considered taxable income.
A Closed School Discharge is a critical protection for students whose academic plans are disrupted by a sudden school closure, ensuring they aren’t burdened by debt for a credential they couldn’t earn.