You may be able to discharge or cancel student loan debt you borrowed for a program you were unable to complete because the school closed. The so-called “closed-school discharge” (or cancellation) applies mostly in the context of for-profit schools. The most common reason for the closure is loss of accreditation. Significantly, you may be eligible for the discharge even if you received a diploma or a certificate of completion.
The discharge for school closure is “branch specific,” meaning that you are entitled to cancel the student loan debt if the branch you attended closed. If other branches of the school, but not the one you attended, closed, you will generally not be eligible for the closed-school discharge. If you took part in an on-line program, you will only qualify for the discharge if the main campus closed. You cannot claim the discharge if you were able to complete your program of study through a “teach out.”
Significantly, you don’t have to have been enrolled on the date of closure — you may be eligible for student debt cancellation if you withdrew within the 120 day period immediately preceding the school closure. Further, if the school closed while you were on an approved leave of absence, you may still be eligible for the closed-school cancellation.
If eligible, any debt you incurred may be discharged, you may be entitled to reimbursement of repayments already made, and the discharge must be reported to credit reporting agencies. Significantly, you are entitled to this relief even if you already completely repaid the student loan debt.
You must apply to the Department of Education to obtain the closed-school discharge. Because the decision to grant you the closed-school discharge may take a long time, you will likely want to accompany the application with request for administrative forbearance to defer making payment on the loan while the decision is pending.
If you would like to learn more about how the closed-school discharge might work for you, call my office at 914-385-1032 to schedule an appointment.
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