Lori Meadows
If your school closes while you're enrolled or shortly after you leave, you may not have to pay back your student loans. This is known as a closed school loan discharge. To qualify, you must meet certain eligibility criteria, such as not withdrawing from school more than 120 days before its closure and not being enrolled in another educational program. Additionally, if your school engaged in misconduct, you may be eligible for the borrower defense program, which can forgive some or all of your student loan debt. It's important to understand the type of loans you have, whether federal or private, as this impacts the options available for repayment or discharge. Federal loans offer rehabilitation and consolidation, while private lenders may negotiate. If you're struggling to make payments, reach out to your loan servicer to discuss options like forbearance or deferment, which can provide temporary relief but may extend your repayment period.
| Characteristics | Values |
|---|---|
| What to do if your school closes | You may not have to repay your federal student loans and may be eligible for a closed school loan discharge. |
| Closed School Loan Discharge Application | Fill out the application and send it to your student loan servicer. |
| Application deadline | There is no set deadline, but it is recommended to submit it as soon as possible. |
| Payment during the application process | If you are currently making payments, continue to do so until you receive a decision on your application. |
| If approved for discharge | You are no longer responsible for any further repayment. |
| If denied for discharge | You are still legally responsible for making payments. If you believe there has been a mistake, contact your loan servicer. |
| Eligibility criteria | You withdrew from school within 120 days; you are not enrolled in another educational program; you have not completed all coursework for your program; you did not complete a comparable program through a "teach-out." |
| Delinquency reporting | Private student loans may be reported delinquent as early as 30 days without a payment; Federal loans in the FFEL program are considered delinquent at day 60; Direct and FFEL federal loans owned by ED are reported delinquent at day 90. |
| Default | If you continue to miss payments, your loan will enter default, typically after 270 days. This can negatively impact your credit score and lead to legal consequences. |
| Options for default | Reach out to your servicer to discuss options, such as rehabilitation, consolidation, or negotiation for private loans. |
| Understanding your loans | Make a list of your loans, including type (private or federal), monthly payment, due date, balances, interest rates, and servicer. |
| Budgeting | Create a budget to understand how your student loans fit into your finances and explore strategies for reducing debt. |
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What You'll Learn
Closed School Loan Discharge
If your school closes while you are enrolled, you may not have to pay back your federal student loans. This is called a closed school loan discharge. There are a few ways to qualify for a closed school discharge:
- You were enrolled in the school when it closed.
- You withdrew from the school within 120 or 180 days of it closing (this depends on when your loans were issued).
- The campus you were attending closed, but the rest of the school's campuses remained open.
If you qualify for a closed school discharge, you will need to fill out a closed school discharge application and submit it to your federal loan servicer. There is no deadline for the application, but it is recommended to submit it as soon as possible. If your application is approved, you will no longer be responsible for repaying the loans you borrowed to attend the closed school, and any negative credit history for those loans will be deleted from your credit report. You will also receive a refund of any payments you have already made on those loans.
It is important to note that if you choose to complete your program through a teach-out, either at the same school or at another school, you will not be eligible for a closed school discharge. A teach-out plan allows students to finish their program when their school or campus closes. This may involve working with other schools or campuses to allow students to finish their program. If you transfer credits from your closed school to a comparable program, you will also not be eligible for a closed school discharge.
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Know what you owe
Knowing what you owe is the first step to paying off your student loans. It is not uncommon for students to leave college with multiple student loan accounts, which may be spread across different loan servicers. Therefore, tracking your debt is essential to managing your payoff strategy. Here's how to find out what you owe:
Federal Student Loans:
To find out your total federal student loan balance, log into StudentAid.gov with your FSA ID and select "My Aid." This website is the official site for the U.S. Department of Education and contains all the relevant information about your federal student loans, grants, or other aid. If you don't have an FSA ID, you can create one on the website or log in with your email address or phone number.
Private Student Loans:
For private student loans, you will need to contact each of your loan servicers individually to determine your total loan balance. Log into your loan servicer's website to view your account or contact them directly to ask about your balance. The current noteholder, if different from the servicer you send regular payments to, should also have specific information about your loan. If you are unsure who your loan servicers are, this information should be listed on your original loan paperwork, such as a promissory note or disbursement notice. You may also find the lender or servicer by checking your credit report.
Review Account Statements:
Reviewing past account statements can help you understand what caused your balance to grow. If you believe your loan balance is higher than it should be, contact your loan servicer to discuss the issue. If you want the servicer to reduce what you owe, you will need to provide evidence of a mistake or proof that the loan has been paid off or discharged.
Total Loan Balance:
To find your total loan balance, start by checking your federal student loan balance, then add any private student loan balance. Knowing your total loan balance will help you create a repayment plan that works for you.
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Avoid defaulting on loans
Defaulting on student loans can have serious consequences, so it's important to take proactive steps to avoid it. Here are some strategies to help you avoid defaulting on your student loans:
Understand the consequences of default
Recognize that defaulting on student loans is a significant issue. Even if you don't graduate, struggle to find employment after graduation, or didn't like your school, you are still responsible for repaying your student loans. Defaulting on federal student loans can lead to various negative outcomes, including losing your tax refund or Social Security check, damage to your credit score, and difficulty accessing additional federal student aid or other types of loans and credit in the future.
Stay in contact with your loan servicer
Maintain open communication with your loan servicer or lender. If you're having difficulty making payments, contact them immediately to discuss your options. Ask about available repayment plans, deferments, or forbearances. Lenders would often rather work with you to find a solution than have you default on your loan.
Prioritize federal loans
If you have both federal and private education loans and can only afford to make payments on one, prioritize the federal loans. Federal loans typically offer more flexible repayment options and harsher penalties for default. Deferments and forbearances can provide temporary relief by postponing your repayment obligations.
Make consistent payments
To get out of default, you'll need to negotiate with your servicer or lender to set up a repayment plan. Once you start making payments, ensure that they are consistent and on time. On-time is generally defined as within 15 days of the due date. Making six consecutive full voluntary on-time payments can help you become eligible for additional Title IV aid and improve your creditworthiness.
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Look into income-driven repayment plans, such as the Saving on a Valuable Education (SAVE) plan, which offers benefits like lower payments and interest rate adjustments. These plans can provide some financial relief and make your loan payments more manageable.
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Explore repayment strategies
If your school closes, you might not have to pay your federal student loans and can apply for a closed school loan discharge. You can fill out the Closed School Loan Discharge Application and send it to your student loan servicer. You should also ask your loan servicer about the application process for getting your student loans discharged. There is no deadline for the application, but it is recommended to submit it as soon as possible.
If you are struggling to pay off your student loans, you can explore programs like forbearance or deferment, which may result in a longer repayment period. Your options depend on your financial situation and the type of student loans you have. Reliable lenders will want to work with you to help you get out of default. Federal loans offer rehabilitation and consolidation, while private lenders may be willing to negotiate a deal.
You can also change the terms of your repayment. For example, you can request a different due date to make it easier to make your payments on time and in full. You can also make a budget and explore strategies for reducing debt to help you see how your student loans fit into your finances.
Additionally, you can apply for loan forgiveness, cancellation, or discharge. For example, if your school engaged in misconduct while you were enrolled, you may be eligible to have some or all of your student loan debt forgiven through the borrower defence program.
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Loan forgiveness, cancellation, and discharge
If you're struggling to pay off your student loans, you may be eligible for loan forgiveness, cancellation, or discharge. While the terms forgiveness, cancellation, and discharge are often used interchangeably and mean the same thing—that you're no longer required to pay back all or part of your loan—they are typically used in different contexts.
Forgiveness or cancellation usually refer to debt relief due to employment or service accomplishments. For instance, the US government offers loan forgiveness programs to borrowers with federal loans, often linked to their occupation. The most popular program is the Public Service Loan Forgiveness (PSLF) program, which includes teachers, lawyers, and healthcare workers in the public sector. Another example is the Perkins Loan program, which ended in 2017 but offered cancellation benefits to borrowers working in education or other service-related fields.
Discharge, on the other hand, usually refers to debt relief due to circumstances beyond an individual's control, such as disability, death, bankruptcy, or school closure. If your school closes, you may not have to pay back your federal student loans. To qualify for a closed school loan discharge, you must fill out an application and submit it to your loan servicer. However, you may be disqualified if you withdrew from school more than 120 days before its closure, are enrolled in another educational program, have completed all your coursework, or have transferred your academic credits to another school to complete your program.
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Frequently asked questions
A closed student loan is a loan that has been paid off and should show a zero balance. It will remain on your credit report for up to ten years after it has been paid off.
If your school closes, you might not have to pay your federal student loans. You may be eligible for a closed school loan discharge. You can fill out the Closed School Loan Discharge Application and send it to your student loan servicer.
If you continue to miss payments, your loan will eventually enter default. For most federal loans, this occurs after 270 days, or approximately 9 months. Defaulting on a federal student loan can lead to losing eligibility for federal student aid and wage garnishment.
If you are struggling to make your student loan payments, it is important to reach out to your loan servicer immediately to ask about your options. Reliable lenders will want to work with you to help you. Federal loans offer rehabilitation and consolidation.
