It's not common for colleges to close — only 12 shut their doors in 2025 — but it can happen. If your college closes and you’re stuck with debt and no degree, you do have a few options.
You can use your credits at another school
If your college is going to close, you’ll likely know it’s coming — at least if you attend a nonprofit school. Though there have been cases of students showing up to locked doors.
“The harm to students is so much greater because they close their doors in the middle of the semester, and a lot of those credits won’t transfer and there isn’t good record retention,” says Amy Laitinen, director for higher education at New America, a nonpartisan think tank.
When most schools close, they enter into a teach-out agreement for their students with one or a few nearby colleges. A teach-out means you can complete your degree at another institution that has agreed to enroll you and accept your credits.
When Holy Family College closed, for example, it entered into 15 teach-out agreements, and most of those colleges were in the same state.
By entering into a teach-out program, you keep the credits you earned, but you won’t be eligible for closed school discharge, which forgives your student loans.
If you plan to complete your degree, access your academic transcript before your school closes so you can transfer credits. The federal student aid website offers more information on specific school closures.
You can apply for closed school loan discharge
If your school closes, you’re eligible to have your loans discharged only in these scenarios:
- You were enrolled or on an approved leave of absence when the school closed.
- The closure happened within 180 days after you withdrew.
That means your loans won’t be forgiven if you graduated, if you are continuing coursework elsewhere by transferring or through a teach-out. But there are some cases where you might want to take the discharge anyway to relieve your debt burden.
“In the case where a student is going to a shady for-profit college where your credits won’t transfer and you didn’t get much of an education, you may be better off taking the discharge,” says Laitinen. “But if you can transfer your credits and finish out your degree, the returns for a degree are great.”
You can apply for a closed school discharge, tax-free, by contacting your federal student loan servicer.
If your school closes, your loan holder should automatically send you a loan discharge application. Your loan should be discharged within one year if you qualify.
You can pursue borrower defense to repayment
If you already graduated with a degree and your school closes, you won’t be eligible for a loan discharge. But if you can prove your college defrauded you in some way, you could apply for forgiveness through borrower defense to repayment.
“You shouldn’t just assume that if your school closes they’ll forgive your loans,” says Sandy Baum, a former nonresident senior fellow at The Urban Institute. “The question is: Can you show you were really financially harmed by it?”
Borrower defense to repayment is much harder to get than a closed school discharge. According to March 2026 data from the Education Department, only about 20% of the over 460,000 applications submitted had been approved.
Article sources
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- 1.BestColleges. Tracking College Closures and Mergers. Accessed Aug 3, 2026.
- 2.Federal Student Aid. Borrower Defense to Repayment Loan Forgiveness Data. Accessed Aug 3, 2026.
