Student loan forgiveness is an increasingly prevalent topic in higher education, and it’s not just because Americans owe a collective student loan debt in excess of $1.5 trillion dollars. For many students, loan forgiveness programs are more than an antidote to crushing debt. Certain loan discharge and defense to repayment programs may be the only path to financial recovery after a sudden school closing, college collapse, or suspended program. If you’ve been impacted by a school closing, or think that you might be at risk of one, you probably have a ton of questions. We’ll do our best to answer these questions and help you find the way forward if your college or university has suddenly imploded.
Imagine attending classes everyday, studying for your exams, advancing toward a degree, and preparing your resume for future interviews only to show up one day and find that your school is out of business. What do you do?
What happens to your degree if your school closes? What about your credits? Do you still owe student loans? Can you get loan forgiveness if your school closed?
The answer to these questions will likely vary depending on the type of college you’ve attended, the circumstances behind its closure, and your educational and career goals. But if you’re visiting this page, there’s a chance that the threat of school closure is more than just theoretical.
Indeed, for the former students of now-defunct for-profit colleges like Corinthian College, Argosy College, IT Technical Institute, and The Art Institute, school closure is a reality. And with the late 2018 announcement that Education Corp. of American (ECA) will be closing the doors to Virginia College, Brightwood College, Eotech Institutes, and the Golf Academy of America in 2020, some 20,000 students will soon be without a college to call home.
When schools close, what happens to their students? In most cases, the result is academic exile for active student bodies, and a serious dilemma for those holding degrees from defunct institutions.
If your plan involves shopping for a new and better online education, jump to The Best Online Colleges & Universities.
Otherwise, read on for tips on how to navigate the closing of your college, university, or online education program. If your school has closed, there are two paths you can go down:
- You can pursue the completion of your education through a transfer or “teach out” or
- You can pursue loan forgiveness through one of several programs, including the Student Loan Discharge for Closed Schools and the Borrower Defense to Repayment application.
We explore both paths below:
Transferring to a New School
If college completion is your top priority, you’re probably shopping for a new school right now. It goes without saying that we’ve ranked just about every kind of program you can think of. So feel free to dig in. Just bear in mind that if you do successfully transfer into a new school, you will still be required to repay the student loans from your prior institution, regardless of the circumstances surrounding its closure. Depending upon the structure of your loans, you will likely be able to defer repayment as you complete your education.
As you shop for schools, you should also be aware that you may face some serious challenges when it comes to credit transfer. This process can be bureaucratic and frustrating even if you’re moving between two totally legit colleges or universities. You can imagine the added complexities when you’re transferring credits from a for-profit college that just filed for bankruptcy. Still, you have a right to pursue the transfer of as many credits as possible. Be sure that you understand the process, and take steps to improve your chances of getting credit where credit is due.
Check out the resources that apply to your situation:
- Will my college credits transfer? (From nationally accredited to regionally accredited)
- Transferring from Online College to Campus
- Transferring from Campus to Online College
Completing Your Education Through a Teach-Out Plan
According to, NerdWallet, “if your school is on the path to closure, it may also offer what’s known as a teach-out plan. A teach-out plan helps you finish your coursework, typically at another institution that has agreed to take on students from your closed school.”
In this case, begin by reaching out to your academic advisor or counselor to learn more about participating colleges and universities. Obviously, if your school is nearing closure, time is truly of the essence. Begin this conversation with your advisor just as soon as possible. If you are able to match with a participating school, the “teach-out” option could prove the smoothest path to maximizing on the credits you’ve already earned.
You could also consider reaching out to colleges and universities that specialize in degrees for working adults. Online colleges and unviversities tailored to working adults often include degree completion programs and credits for work experience. If that sounds like you, check out:
Discharging Your Federal Loans
If your college or university has closed, and you either plan to take a break from your education or enter into the workforce, you should absolutely pursue efforts to discharge your federal loans.
According to Student Loan Planner, if you are a student with Direct Loans, FFEL Loans, or Perkins Loans, you may be eligible for student loan discharge upon meeting these criteria:
- You were a student and enrolled in college at the time the school closed;
- You were on a leave of absence that was approved by your school at the time the school closed; or
- You withdrew from school and your school closed within 120 days of that period.
If you meet these requirements, you should proceed by filling out the Federal Loan Discharge Application for School Closure.
You must continue to make payments on your loan until your application is either approved or denied for discharge. If approved, you can stop making payments. Your balance is zero.
Disqualifying Factors for Student Loan Discharge
Before you apply, you should also be aware of several disqualifying factors. According to Student Loan Planner, in spite of the fact that your school closed, you are disqualified from discharge eligibility if:
- You withdrew from school within a period that exceeds 120 days, except in rare cases;
- You are enrolled and part of another educational program; or
- All coursework for your program is done—even if you have not yet obtained your diploma or certificate.
It is still possible that your application will be denied even if you do not fall into one of these disqualifying categories. If that does occur, consider reaching out to the Department of Education’s Office of Student Loans for further explanation. This is also your opportunity to make the case that the denial of your claim was reached in error.
Borrower Defense to Repayment
If you are either ineligible for discharge, or unable to appeal a denial, you do have another option which could also zero out your loan debt. The Borrower Defense to Repayment carries fewer disqualifying factors than the school closing discharge program. If you believe that you have been impacted by fraud, corruption, or the legal misconduct of your college or university, the Borrower Defense to Repayment application allows you to make a claim. By contrast to the school closing loan discharge program, the Defense to Repayment is available to most graduates, including those who have completed their coursework. If you attended, graduated from, and hold a degree from an institution whose reputation has been damaged by misconduct, and you are still repaying your student loans, you should apply for the Borrower Defense Repayment.
Get started by filling out the Borrower Defense to Repayment application.
Be aware that the future of the Borrower Defense to Repayment program is uncertain. The Department of Education has undertaken efforts to curtail and even rollback the Borrower Defense to Repayment Act, but has so far been rebuffed by court rulings. At the time of writing, the Defense to Repayment program remains intact. You are advised to stay abreast of changes to this program, especially if you think you might be impacted by a school closing.
Contacting Your Loan Servicer
The discharge and forgiveness programs outlined above apply only to federal student loans. If you have private loans that you’re also managing, you will need to contact your private lender. Find out what forgiveness or discharge programs exist for your particular circumstances.
Every lender is likely to handle a school closing situation differently. Be prepared to explain why your situation justifies loan forgiveness, but also be prepared for pushback. Some lenders may be more willing than others to work with you on this.
If you aren’t happy with the answer you get from your loan provider, you may want to consider an option like loan refinancing. While you would still be on the hook for your student loans, you might find a more accommodating lender to take on your loans. To learn more, check out Student Loan Refinancing—And Other Tips On Post-Graduate Adulting.
To learn more about the student loan landscape, check out The Benefits and Pitfalls of Student Loans.
Repaying Your Student Loans
Even if your school has closed, circumstances may make you ineligible for discharge or defense to repayment. This is even likelier if you hold some debt with a private lender. We're not saying it's fair, but it could definitely happen. At this point, your only option is to repay your student loans to the best of your abilities. After all, the last thing you need at this point is a damaged credit rating.
For tips on the best way to attack this challenge, check out How to Repay Student Loans.
And however you proceed, be aware that every school’s circumstances may differ, as may your individual circumstances. One of the best ways to determine your options is to check the Federal Student Aid office’s list of defunct colleges and universities. Here, you can find resources pertaining to each individual school, including contact information for getting a hold of your transcript, identifying “teach-out” opportunities, and determining your eligibility for loan forgiveness or loan discharge
If you’ve experienced a school closing, we understand your hesitation as you take your next steps. But if you are preparing to move forward, the best thing you can do for yourself is to proceed armed with a ton of information. If you’re planning to give it another try, check out Why Online Education? A Second Chance at a First-Rate Education.