A school closure can leave you with no degree and burdened with debt. Here’s what you can do if your school closes while you're enrolled:
- Complete your education through a transfer or “teach-out plan,” in which another institution agrees to take on students from the closed school.
- Apply for a closed school loan discharge with the federal government, which will forgive your federal student debt.
If you accept a teach-out plan, you’ll be ineligible for a closed school loan discharge, unless you fail to complete your program at the new school. However, transferring your credits to an entirely different institution does not disqualify you from loan discharge.
As of April 2024, the Education Department has discharged $22.5 billion for 1.3 million borrowers whose schools took advantage of them or closed.
President Joe Biden’s plan B for broad student loan forgiveness would automatically discharge loans for borrowers whose school closed, no application needed. This could help around 250,000 borrowers, per Education Department estimates. However, this plan B proposal is still under review and has not rolled out yet.
Do your research about the new school before accepting a teach-out plan, and consider pursuing a closed school loan discharge if you decide to transfer to a new school entirely. Here’s how.
Transfer or teach-out if your college closes
Transferring to another school lets you continue the educational path you’ve already started. Before you start the transfer process, see how many of your existing credits your new school will accept. Credits obtained at a school that has closed may only be partially transferable — or not transferable at all.
Before your school closes, it must provide you with a way to access your transcripts in the future so you can share it with potential transfer schools. If your school has already closed, you can get this information from the state licensing agency where the institution was located.
If your school is on the path to closure, it may also offer 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 closing school. Be sure to research the new institution using the College Scorecard to evaluate the education you’ll receive.
» MORE: Your college choice: How to see if a school is legit
Apply for closed school discharge
Under a closed school loan discharge, all of your federal loans will be dismissed. That means you won’t have to repay them, previous payments will be refunded and the loan history will be erased from your credit report.
To be eligible, you must meet one of the following conditions:
- The school closes while you’re enrolled — or on an approved leave of absence — and you haven’t completed your program.
- The school closes within 180 days after you withdraw from a program without a degree.
Your loans are not eligible for a closed-school discharge if you graduated or completed your program at the closed school, if you complete a comparable educational program through a teach-out plan or if you study at a different branch of the closed school.
If you meet the eligibility requirements for a closed school discharge, you should automatically receive a discharge application that you can submit to your student loan servicer. If you don’t receive the application, contact your servicer directly about the loan discharge application process. A PDF version of the application is available on StudentAid.gov.
You must continue to make any student loan payments that are due while your discharge application is under review. If approved for the discharge, you’ll get a refund for these payments.
Discharged amounts do not count as taxable income on your federal return.
If you feel like the closed school defrauded or misled you, you may be able to receive relief under a program called borrower defense to repayment. But to do this, you would have to demonstrate that your school violated laws in its state when it came to educational services or loans. This option is available whether you've graduated or not.
Closed school relief for grant recipients, servicemembers and private loan borrowers
Specific groups of borrowers may qualify for extra relief in the event of a school closure:
- Pell Grant recipients. You can receive a maximum of six years’ worth of Pell Grants. If you are unable to complete your education due to a school closure, the Department of Education can restore portions of your Pell Grant eligibility.
- GI Bill benefit recipients. The U.S. Department of Veterans Affairs has the authority to reset GI Bill benefits for a student when a school closes. You can find more information about restoring these benefits on the VA’s website.
However, there is no universal closed school discharge or loan forgiveness program for private student loans. Contact your private lender to see what assistance may be available.
State tuition recovery funds
If your state offers a tuition recovery fund or student protection fund, you may be able to receive some compensation for lost costs and educational opportunity due to a school closure. Fund availability and qualifications will vary from state to state, so check with your state’s post-secondary education or licensing agency.
