Quick overview

When an accredited school shuts down, students and recent withdrawers can sometimes have federal student loans discharged. The most common path is a Closed School Discharge administered through federal student loan servicers and the U.S. Department of Education. Eligibility hinges on timing (the school closed while you were enrolled or soon after you withdrew), whether you could reasonably complete your program, and whether credits transfer to another institution.

This guide explains how closures affect discharge eligibility, how to apply, what documentation you’ll need, realistic timelines, differences between federal and private loans, and practical tips I use in my practice to help borrowers navigate the process.

Who qualifies for a closed school discharge?

  • Federal student loan borrowers whose school closed while they were enrolled, or within 120 days after they withdrew, generally qualify for a closed school discharge. This includes Direct Loans, FFEL Program loans, and Perkins Loans in many cases (see official guidance below).
  • Borrowers who were on an approved leave of absence when the school closed may qualify if they would have continued enrollment but for the closure.
  • If you transferred to another school but could not complete your program because credits did not transfer, you may also qualify.

Note: The timeline can be flexible in special circumstances. The U.S. Department of Education evaluates eligibility case-by-case; contact your loan servicer or check studentaid.gov for the latest rules (U.S. Department of Education — Federal Student Aid).

(Source: U.S. Department of Education — Federal Student Aid: https://studentaid.gov)

Which loans are eligible — federal vs private

  • Federal loans: Closed School Discharge applies to most federal loans, including Direct Loans and certain FFEL and Perkins loans. If approved, the discharge cancels loan balances and may refund loan payments made after the school closed.
  • Private student loans: Private lenders are not required to follow closed-school discharge rules. In rare cases some private lenders offer relief, but borrowers typically must negotiate directly with the lender or seek other remedies (for example, court action or bankruptcy, which is difficult for student loans). See our internal primer on differences between federal and private loan discharge for more detail: Federal vs Private Loan Discharge: What Borrowers Need to Know.

How a school closure discharge differs from borrower defense or false certification

  • Closed School Discharge: Triggered specifically by a physical closure of the school that prevents completion of a program.
  • Borrower Defense to Repayment (BDR): For situations where a school defrauded or misled students (for example, false job-placement claims, lying about accreditation, or deceptive recruiting). BDR can result in full loan discharge and is based on misconduct, not just closure.
  • False Certification/Unauthorized Signature: Older categories of relief (false certification that you were eligible for aid or loans signed without your permission) have been folded into borrower defense or other administrative processes but may still be referenced in case files.

If the closure resulted from school misconduct, you may qualify for borrower defense in addition to (or instead of) a closed school discharge. Each program has different standards and documentation requirements — consult the Department of Education guidance at https://studentaid.gov and consider legal help for complex fraud claims.

Step-by-step: How to apply (practical checklist)

  1. Contact your loan servicer immediately. Tell them the school closed and ask whether you qualify for a closed school discharge. Your servicer is the office that receives and services your federal loan payments.
  2. Gather documentation:
  • Enrollment dates (acceptance letter, class schedule, transcripts)
  • Withdrawal date, if applicable (withdrawal forms or email confirmation)
  • Communications from the school about closure (emails, notices, news articles)
  • Proof that you could not reasonably complete your program (e.g., transfer denial, nontransferable credits)
  1. Complete and submit the closed school discharge application provided by your servicer or the Department of Education. Many servicers offer an online form; otherwise they’ll send a paper form.
  2. Keep records of everything you submit and notes of phone calls. Ask for a case or confirmation number.
  3. Monitor your account and credit reports. If discharged, your servicer should update your account and report the change to credit bureaus.

Practical tip from my practice: Photograph or scan all hard-copy records and keep them in a dated folder. If a school’s website disappears after closure, archived news reports or state regulator notices can substitute as evidence.

What to expect (timeline and outcomes)

  • Initial response: After you apply, the servicer typically takes several weeks to acknowledge receipt and request any missing documentation.
  • Decision time: A typical closed school discharge decision can take several months, depending on workload and complexity. In my experience, expect 3–6 months; complex cases or those needing Department review may take longer.
  • If approved: The loan balance is cancelled, interest stops accruing, and the servicer will issue refunds for payments made after the school closed (depending on statute and program rules). The discharge is reported to credit bureaus; confirm the reporting matches the decision to avoid credit errors.
  • If denied: You can appeal, provide additional documentation, or explore borrower defense or other relief options.

Documentation checklist (what lenders/servicers will want)

  • Enrollment and withdrawal dates (official letters, registration records).
  • Evidence the school closed (state education agency notices, accreditor actions, news articles, school communications).
  • Proof you could not complete the program (transfer denial, lack of available coursework at another school).
  • Loan account statements showing payments made after closure (for refunds).

Impact on credit, taxes, and future borrowing

  • Credit: A discharge removes the loan balance, which can improve debt-to-income ratios and monthly payment obligations. However, past delinquencies or defaults remain on your credit report for prescribed periods; a discharge doesn’t automatically erase repayment history.
  • Taxes: The tax treatment of forgiven or discharged student loan amounts can change over time and may depend on the reason for discharge. Before making financial decisions based on a discharge, check current IRS guidance and state tax rules or consult a tax professional. Authoritative IRS resources and Treasury/legislative updates should be reviewed for the year you receive a discharge.

When a closed school discharge may not apply

  • You graduated before the school closed or completed your program.
  • You withdrew long before the school’s closure and had a reasonable opportunity to complete elsewhere.
  • You hold private student loans — these are typically not eligible under federal closed-school rules.

If you don’t qualify, look into other relief routes: borrower defense (if the school committed fraud), income-driven repayment plans, loan rehabilitation, or targeted settlement negotiations. See our article comparing discharge options for more alternatives: Student Loan Discharge Options: Disability, Closed School, and More.

Common mistakes to avoid

  • Waiting too long to contact your servicer — early outreach preserves evidence and opens administrative paths.
  • Failing to save school communications and enrollment records — these are frequently decisive.
  • Assuming private loans will be discharged under the same rules — most won’t.

Real-world example (anonymized)

A technician I advised attended a private for-profit trade school that closed unexpectedly four weeks after they dropped classes. The borrower had paid several months of loans and had no viable transfer options. After submitting enrollment records, proof of closure, and correspondence showing inability to transfer credits, the servicer approved a full closed school discharge. Payments made after the closure date were refunded, and the loan balance was cancelled. The process took about five months from application to final decision.

Resources and next steps

Internal resources on FinHelp.io:

Professional disclaimer

This article is educational and does not constitute legal, tax, or financial advice. Rules change; consult your loan servicer, an attorney, or a licensed financial professional for advice tailored to your specific situation.

Authoritative sources

(Updated guidance referenced through 2025.)