Only a few other universities have permanently shut as a result of the COVID-19 pandemic. College experts believe that most colleges will successfully be able to deal with this problem. However, certain schools are more at risk than others.
Is your school no longer open? Or did you get the bad news that your for-profit college is going out of business? You might have a range of concerns about closed school discharge if you took out student loans to attend a now shut school or in the course of being closed.
Some colleges have permanently closed their doors. When your school closes, and you’re wondering what will happen, it may be a disturbing experience. “Do I have to pay my student loans if my school closes?” is a critical challenge you might have. I know this is a complicated answer, but it all varies.
Who is not qualified for Closed School Loan Discharge?
On the other hand, you won’t be able to get your student debt forgiven if the school you went to closed and:
- You are a student in another academic program.
- You decided to resign more than 120 days before the school’s closure.
- You finished a similar program through a teach-out, academic credit move to a new school, or another similar method.
- Even if you have not yet received your diploma or certificate, you have completed all of your program’s courses.
It is important to note that you will only obtain loan discharge for programs that you were unable to complete due to your school’s closure. If you were enrolled in another program that you could have finished, you would be eligible for a loan discharge for the funds you borrowed for that program.
It is worth noting that this information only applies to federal student loans. If you have private loans, you should contact the lender to determine their policies and procedures.
Who is qualified for Closed School Loan Discharge?
Let us begin with some great news. Under certain conditions, you may be able to have your federal student loans wholly discharged. So, if you’re curious to know whether you have to pay your student loans if your school closes, the answer is (hopefully) no. However, you must ensure that you meet the qualifying conditions.
If you have a Federal Family Education Loan (FFEL), Direct Loan, or a Federal Perkins Loan, you may be qualified for a closed school loan discharge if you meet the following requirements:
- You were on a school-approved leave of absence at the time the school closed.
- You were a college student at the time the school closed.
- If the school closed within 120 days of your withdrawal from school (In particular circumstances, the government may extend this period.)
- If you meet one of these criteria, you may be eligible for 100% student loan discharge.
You have the option of pursuing borrower defense to repay. If you have already completed the course and your school closes, you will not be qualified for a loan discharge. However, if you can demonstrate that your college scammed you somehow, you may be able to apply for forgiveness through borrower defense to reimbursement.
“You shouldn’t just presume that if your school decides to close, they’ll forgive your loans,” Baum advises. “The question is, can you demonstrate that you were truly negatively affected financially as a result of it?”
Borrower Defense to Repayment
If you can confirm that the school deceived you such as ITT or Phoenix university, you may be eligible for loan forgiveness depending on a “borrower defense to repayment.” On March 18, 2021, the United States Department of Education declared that it would abandon Former Education Secretary Betsy DeVos’ formula for calculating partial loan relief in favor of a “streamlined approach” to awarding total relief for authorized borrowers’ defense claims.
Borrowers who receive loan relief can demand a complete discharge of their federal student loans, repayment of any amounts paid on the loans (when permitted by law), and reinstatement of enrollment for federal student assistance. You can also request that any associated adverse credit reporting be removed from the credit reporting bureaus.
Loan Discharge Process
Suppose you fulfill the criteria for a discharge of loans acquired to participate in a closed school. In that case, the Secretary will immediately send you a proposal that you can send to your loan servicer. Alternatively, you can consult your loan servicer directly to inquire about the application procedure for having your loan discharged
- Keep making loan payments while your discharge implementation is being analyzed
- Learn what happens if your loan discharge request is denied
- Learn what happens if your loan discharge request is approved
Suppose you are qualified for an automatically closed school discharge and previously submitted an application. In that case, the Department of Education says it will close the claim of borrower defense, grant the closed school discharge, and inform you.