What happens if a school closes and borrowers seek loan discharge?
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3 Answers
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School closed while I was in it; I filed for Closed School Discharge, got my federal loans forgiven, and stopped monthly payments afterward.
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Watching a school shutter midstream shook us up. When my friend's small local college closed, the first thought was 'am I stuck with debt?' We learned about Closed School Discharge for federal loans. If you were enrolled when the school closed, or you withdrew within 120 days before it closed, you can have the federal loans cancelled for attendance at that school. No trick, if the school closed, the remaining balances on Direct Loans and certain other federal loans can be wiped out. For us, the loan servicer asked for proof: the school’s closure notice, dates of enrollment/withdrawal, and anything showing the program wasn’t completed. After submitting, the balance was discharged and a letter arrived a few months later confirming the forgiveness. It felt like a weight lifted, especially since private loans or state programs aren’t automatically included.
A heads up: this only applies to federal loans, not most private loans. Also, discharge applies to the specific school, credits tied to that closed place, not new programs you started elsewhere. Check your credit report afterward to verify it shows the discharge.
A heads up: this only applies to federal loans, not most private loans. Also, discharge applies to the specific school, credits tied to that closed place, not new programs you started elsewhere. Check your credit report afterward to verify it shows the discharge.
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Closed School Discharge is the route. If your school closed while you were enrolled or you withdrew after it closed, you may qualify to have your federal loans discharged. File a Closed School Discharge application with the Department of Education or your loan servicer. You'll need your personal info, loan numbers, the school's name, and the closure date (proof helps). If approved, the remaining balance on Direct Loans and many FFEL loans is wiped out, collections stop, and the loan status updates to discharged. It’s usually not taxable at the federal level, though some states may tax it, check with a tax pro. When my own school closed, gathering closure proof and staying patient through the process got me a clean slate after several months.
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