Can Student Loans Be Discharged if My School Closed Down?

Question: I have a student loan of about $50,000. It is in deferment. I was working with a company for a few years, trying to get the loan discharged based on the fact that my school closed and offered false certification. I had filled out a bunch of papers, and they kept deferring my loan while waiting for a response. When I went back to see what the status was, I learned they went out of business. I have all the paperwork of all the information on how I was misled by the school, but I have no way of going back to continue. I need to do that, or I can’t become certified in New Jersey so I can work full-time. Is there anyone who is knowledgeable on this topic that I may show my paperwork to and can assist me with this? 

– Denese in New Jersey

Steve Rhode, the Get Out of Debt Guy, responds…

Resolving this terrible situation depends on several factors. First, are your loans federal or private? For federal loans, the recommended way to deal with a closed school discharge is to work directly with your federal student loan servicer. Private student loans? Sadly, they’re not eligible for what’s known as a “closed school discharge.”

Another problem with pursuing these discharges is that the timing is very strict.

If your school closed after November 1, 2013, and you haven’t enrolled at another school, then your federal student loans should be automatically forgiven from the U.S. Department of Education. (Why that date? It’s not worth explaining. It’s just the way it is.)

If your school closed less than three years ago, you will need to contact the servicer and confirm you are even eligible for a closed school discharge.

To be eligible you must have one of these:

• Direct Loan
• FFEL federal student loan
• Perkins loan

Student loan forgiveness

To be eligible for forgiveness, you must have been attending the school when it closed, or the school must have closed within 120 days after you withdrew.

If you elected to complete your coursework at another school – or you completed your coursework before the school closed – you are not eligible for a discharge of the federal student loans.

Even if you’re eligible, you’ll need to make sure you continue to make payments while your discharge application is being processed. This is important. Until your application is accepted, nothing has officially changed in your situation.

If your closed school discharge application is approved, the debt will be forgiven. You will receive reimbursement of payments made, and the history of the loan will be deleted from your credit report.

The key here is: You should work with your federal student loan servicer directly. If you want more details, the government has an FAQ that goes into all the details. It’s not light reading, but it’s crucial if you want to get this taken care of. Good luck, Denese.