College Closing? Here’s How To Get Your Student Loans Forgiven
August 2, 2019
An array of four-year institutions and community colleges have shuttered their doors over the last decade, most of which have cited financial problems as the source of their woes. This has included mostly for-profit schools like Vatterott College and some Art Institutes and Argosy University campuses, but also public schools like Mount Ida College in Massachusetts in 2018. And the aftermath has been, well, nothing short of devastating for students caught in the crossfire.
After all, there are thousands of students still attending these schools when they close their doors — some close to graduating and others only a few years in. Many are part of the 45 million Americans nationwide who have borrowed thousands of dollars to pay for their education. Once their school closes, however, they’re left to figure out a way to transfer credits from a shuttered institution and pick up the pieces so they can move on.
By and large, that’s why the federal government has rules in place that help students of these institutions get their federal student loans forgiven. According to financial attorney and author Leslie Tayne, who works closely with many struggling student borrowers, you may be eligible for forgiveness if your school closed while you were enrolled, within 120 days of when you withdrew, or while you were on an approved leave of absence.
On the flipside, you do not qualify for this forgiveness if:
you withdrew more than 120 days before the school closed (outside of special exceptions)
you are completing a comparable educational program at another school through a teach-out, by transferring academic credits or hours earned at the closed school to another school, or by any other comparable means
you completed all the coursework for the program before the school closed, even if you did not receive a diploma or certificate
These requirements can be tricky for students reeling from a school closure. For example, the U.S. Department of Education states that you may be eligible for loan forgiveness if you don’t transfer your credits to another school to pick up where you left off. If you do transfer credits or hours over to a new institution and continue your education, however, you may be out of luck.
Also note that forgiveness doesn’t apply to any private student loans you’ve taken out to complete your education. However, the Consumer Financial Protection Bureau (CFPB) states that some states have programs that can help with private student loans in the event of a school closure, so make sure to check.
How to Get Your Loans Discharged After a School Closure
If your goal is getting debt discharged because your school closed, you may not have to take any steps at all. If you meet eligibility requirements, you attended a school that closed on or after November 1, 2013, and you haven’t enrolled in another school within three years of the school closure, your loans should be discharged automatically.
“This discharge will be initiated by the U.S. Department of Education (ED), and you will be notified by your loan servicer,” notes studentaid.ed.gov.
However, you have options if you don’t want to wait three years to have your loans disappear. The U.S. Department of Education says you can contact your loan servicer about starting the process once your school has closed, and that they are legally required to work with you to move the discharge along.
While you wait, however, you are required to stay on top of your payments until the discharge application has been fully processed. Once a full discharge is approved, you are no longer required to make payments on your loans.
What If You Don’t Qualify?
If you don’t meet the criteria to get your student loans discharged after a school closure, you don’t have to give up hope — particularly if you’ve already transferred credits to another school so you can finish your degree and move on with your life.
There are a few other options that can help you handle large loan amounts or especially high interest rates, although some only apply to federal student loans.
Some of your options include:
Income-Driven Repayment Plans: These plans let you pay a percentage of your “discretionary income” for 20-25 years before having your loans forgiven, although only federal student loans qualify. If you meet the requirements for these programs, you may be able to secure a much lower monthly payment than you’re paying right now. Keep in mind, however, that you’ll have to pay income taxes on forgiven amounts once your final loan balance is discharged.
Extended Repayment Plans: While most student loans are automatically set up to be repaid over ten years, the federal government offers other options for federal student loans. For example, an extended repayment plan lets you pay off your loans over 25 years, scoring a lower monthly out-of-pocket amount in the process. You can apply the extended repayment plan to Direct Subsidized and Direct Unsubsidized Loans, Federal Stafford Loans, PLUS Loans, and all federal Consolidation Loans.
Student Loan Refinancing: Also remember that it’s possible to refinance both federal student loans and private student loans with a private lender. Doing so can afford you a much lower interest rate than you’re paying now if you have excellent credit, but you’ll give up federal protections like deferment, forbearance, and income-driven plans if you refinance federal student loans with a private lender. For that reason, this option isn’t for everyone.
The Bottom Line
If your college closed while you were still in school — or right after you left — you may qualify to have any federal loans you took out forgiven automatically after three years. Of course, you also have the right to get the ball rolling and have them forgiven sooner.
Funny enough, this may not be common knowledge. Tayne says that, despite all the news about student loans, many borrowers are still unaware that they can have their loans discharged if their school closed while they were enrolled.