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The Department of Education allows federal student loan borrowers to seek a student loan discharge in certain circumstances. One such scenario involves a discharge related to permanent school cancellation.

If your college or university closes while you’re enrolled you may be wondering if you still have to repay loans you took out to fund your education. Closed school loan discharge can relieve you of the financial responsibility of repaying federal student loans.

There are certain eligibility requirements you need to meet to qualify for a closed school discharge. Understanding the guidelines, along with other options for student loan discharge, can help with managing your student debt.

What Is School Cancellation Loan Discharge?

The Department of Education can discharge up to 100% of federal student loans through the closed school discharge program.

The types of loans eligible for school closure discharge include:

• Federal Direct Loan Program loans (including Subsidized and Unsubsidized loans, consolidation loans, Parent PLUS loans and graduate PLUS loans)

• Federal Family Education Loan Program (FFEL) loans

• Federal Perkins loans

School cancellation discharge of eligible loans is not the same as loan forgiveness. Federal loan forgiveness programs, including the Public Service Loan Forgiveness program (PSLF) and Teacher Loan Forgiveness, have service and repayment requirements. With PSLF, you’re required to work in a public service job and make 120 qualifying payments toward your loans. Teacher Loan Forgiveness requires you to teach in a qualifying school for five consecutive years to be eligible for loan forgiveness.

A closed school loan discharge, on the other hand, imposes no requirements with regard to any minimum number of payments you need to make toward your loans or work service commitments. If you qualify, your obligation to make payments to your loans disappears.

Recommended: Types of Federal Student Loans

Who’s Eligible for Closed School Loan Discharge?

Borrowers may qualify for a school cancellation discharged if their school closed and they meet any of these conditions:

• They were enrolled at the time of the closure

• They were on an approved leave of absence when the closure occurred

• The closure occurred within 120 days of their withdrawal from the school and their loans were first disbursed before July 1, 2020

• The closure occurred within 180 days of their withdrawal from the school and the loans were first disbursed after July 1, 2020

Borrowers may not qualify for any discharge of student loans related to a school closure if:

• The student’s withdrawal happened outside the 120-day or 180-day windows allowed, based on the date of their first loan disbursement

• They are continuing education at another school

• They completed all coursework toward their degree before the school closed, even if they haven’t formally received a certificate or diploma

If any one of those things happens to be true then it’s possible a borrower won’t qualify for a closed school loan discharge.

How Does A Closed School Discharge Work?

If the school closes while a student is enrolled, they can apply for a federal student loan discharge. In general, students who meet the eligibility criteria will automatically receive an application from the Department of Education. The application is also available on their website.

Automatic Closed School Loan Discharge

School closure discharge is automatic if the school closed between November 1, 2013 and July 1, 2020 and the borrower hasn’t enrolled in another school within three years of the date of the closure. The Department of Education handles the closure for the borrower, there’s no need to complete the application. However, borrowers who would prefer to fill out the application, are able to do so.

Once your loans are discharged, the borrower is no longer responsible for paying anything toward them. But while an application for closed school discharge is under review it is important to continue making payments toward the loans as usual if they’re already in repayment. This can help avoid late payments.

Any discharged loans are removed from a borrower’s credit reports once the discharge is complete. That includes your entire payment history as well as negative items such as late payments.

Other Options for Discharging Student Loans

If you aren’t eligible to have your loans discharged because of school cancellation, there are some other scenarios that may allow it.

Disability Discharge

For example, you could apply for a discharge of your loans if you become totally and permanently disabled. The disability discharge option is available to eligible borrowers who owe:

• Federal Direct loans

• FFEL program loans

• Federal Perkins loans

It’s also open to TEACH Grant program recipients. In order to be eligible for a student loan disability discharge, you must be able to provide proof of your disability through a physician, the Social Security Administration, or the Department of Veterans Affairs. You’ll need to complete a separate application for this type of discharge and once approved, you’re subject to a three-year monitoring period to certify that you lack sufficient income to pay your loans.

Discharge in Death

Student loans can also be discharged due to the death of the borrower. That includes loans taken out by a student as well as Parent PLUS loans. In the case of Parent PLUS loans, discharge is an option if the parent who took out the loans passes away. To qualify for a death discharge of student loans, proof of death (i.e. a death certificate) must be submitted to the Department of Education.

In Rare Cases: Declaring Bankruptcy

Though it is rare, bankruptcy may be another option for discharging federal student loans, though it can be difficult to achieve. In order to have student loans discharged through bankruptcy, the borrower must be able to prove through an adversary proceeding that having to repay their loans would cause a sustained undue financial hardship for both themselves and their family.

Filing a bankruptcy case could result in all of the loans being discharged, some of them being discharged or none of them being discharged. Declaring bankruptcy adversely affects a person’s credit score and is generally a last resort. Always consult with a qualified and trusted financial advisor, accountant, or attorney before considering bankruptcy.

Other Options for Managing Student Loans

Federal student loan borrowers who are ineligible for other forms of discharge or student loan forgiveness may want to consider alternative options such as income-driven repayment options or student loan refinancing instead.

Income-driven repayment plans are offered to borrowers with federal student loans and consider a borrower’s discretionary income when determining their loan terms and payments. This can help make monthly payments more manageable but may make borrowing the loan more expensive over the life of the loan by extending the loan term.

Student loan refinancing may allow qualifying borrowers to secure a more competitive interest rate or loan terms. Though, keep in mind, refinancing any federal student loans will eliminate them from federal plans and protections, including income-driven repayment plans and closed school loan discharge.

Does School Closure Discharge Apply to Private Student Loans?

Federal closed school discharge applies to federal student loans only. Borrowers with private student loans wouldn’t be able to apply for a discharge through the Department of Education should their school close.

It may be possible to contact your private student loan servicer to see if any type of discharge option is available. Your lender may be able to offer a solution for handling private student loans if your school closed while you were enrolled and you have no plans to re-enroll elsewhere.

The Takeaway

Closed school loan discharge can help erase federal student loan debt, in the event a qualifying borrower’s school has closed. But if your school remains open or you have private student loans, you may need to consider other possibilities for keeping up with your payments.

Refinancing student loans could help borrowers secure a lower interest rate. Know that refinancing a federal student loan into a private loan eliminates it from federal student loan borrower protections, like income-driven repayment plans, deferment, and loan forgiveness options. So it may not be the best option for everyone.

If you’re considering student loan refinancing, take the time to look around for the best loan rates and repayment terms for you. SoFi, for example, offers competitive student loan refinancing rates with no hidden fees. Weighing student loan refinancing alongside other options can help make your loans more manageable.

Learn more about student loan refinancing with SoFi.

Photo credit: iStock/jacoblund

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SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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If you’ve been investing for a while now—maybe through your employer’s 401(k) or an IRA—and you’re ready to take a more hands-on approach, you’re in luck. A growing number of financial firms are making online trading more convenient and affordable with easy-to-use websites and apps—often with no minimum balance required and commission-free trades.

Some online brokerages even allow investors to buy partial shares of company stocks they might not have had access to in the past because of the cost. Thanks to innovations in financial technology, or fintech, you can now buy and sell stocks and other securities from the comfort of your own couch—or while you wait in line for a latte.

But before you start buying and selling stocks from your phone, you’ll want to have at least a basic knowledge of how the market works; how online brokers execute trades; and how to develop an investing process that fits your personality, plans for the future, and bank account.

Here are some things to consider:

What Is Stock Trading?

All investors take a calculated risk with their money, with the aim of making a profit. But whether you are an investor or a trader depends on how long you typically hold on to investments. Investors are generally looking to grow their savings over the long-term for future goals, stock traders typically try to capitalize on short-term price fluctuations. That can take more time, attention, and exposure to risk than many investors would prefer to commit.

Are You an Investor?

Investors may track what’s happening with the major indexes and the securities in their portfolio, and they might do research or seek advice about the best companies in which to invest. But they’re more likely to use a buy-and-hold strategy—purchasing and keeping stocks or other securities with the idea that these investments will continue to increase in value over years or even decades.

Or Are You a Trader?

Traders keep a close eye on the market throughout the day. They pay attention to current news, tips, and research, and buy and sell stocks frequently. An active trader might buy and sell stocks several times a month, with the goal of beating the market (or getting a better return than the market average). A “day trader,” on the other hand, might buy and sell the same stock in one day, hoping to turn a quick profit and then move on to the next opportunity.

Or Are You Both?

There’s no rule that says you can’t engage in both passive and active investing. You might use your tax-deferred IRA to save for the long haul, for example, but set aside some money to try your hand at trading stocks as well.

It’s up to you how hands-on or hands-off you want to be. But knowing your investment style can help you decide if you’re really up for trading stocks yourself (instead of leaving most of the work to someone else). It also could help you choose a financial firm with the services you require.

Which Type of Broker Suits Your Style?

Investors and traders have a lot of options when it comes to choosing a broker—from long-established financial firms to newer names that offer intuitive online trading platforms and often lower costs.

If you want more help, you might be willing to pay extra for a full-service brokerage with a physical office and an actual person who takes and executes client orders. Or you might decide to limit human interaction (which can get expensive) and instead choose automated investing, leaving the heavy lifting to a robo-advisor that uses computer algorithms to build and manage an investment portfolio.

But if you truly want to get into researching and picking your own stocks, and executing trades on your own schedule, an active investing account with an online brokerage might be the right call.

Many financial websites offer up-to-date reviews of online brokerages, so that can be a good place to start researching. Some factors to consider might include:

•  The broker’s commission fees (many sites now offer free trading)

•  Account minimums (some online brokers don’t require a minimum deposit)

•  Available products (in addition to stocks, you may want to look at exchange-traded funds (ETFs), mutual funds, and/or fractional shares of stock)

•  Educational features

•  Other perks

Of course, you’ll be looking for a company with a solid reputation and good customer service. You can use the BrokerCheck database offered by the Financial Industry Regulatory Authority (FINRA) to get information on the background and experience of financial brokers, advisors and firms.

Once you choose your brokerage, you can open an account whenever you’re ready. (You don’t have to start trading right away.) You’ll probably need to provide your Social Security number and your driver’s license number or other ID. If you’re funding your brokerage account with an electronic transfer from your bank account, you’ll also want to have that information on hand. The website may ask for other information as well, to assess your goals and risk tolerance.

Learning How to Trade Stocks

Once you’ve funded your brokerage account you can start buying stocks. But be prepared—those decisions can be daunting for a newbie. While opening an account is easy, actually getting started investing may be a bit harder.

If you’re not sure where to start, you may want to look at exchange-traded funds, which offer the diversification of mutual funds but trade continuously throughout the day like stocks. ETFs are typically less expensive than either mutual funds or stocks.

Another way to get into the market at a lower cost might be to invest in fractional shares, or pieces of single shares of stocks you might otherwise find too expensive. With SoFi Invest’s fractional shares program, for example, investors can build a portfolio with big-name companies. But instead of buying whole shares, buyers specify the dollar amount they want to spend on a company’s stock. Before you invest in whole or partial shares, you may want to use an online screener to narrow your choices to stocks that meet your specific requirements and do some technical and fundamental research on potential investments. For example, are you looking for companies within a certain size range, or market capitalization (micro, small, mid, or large)? Is there a range you want to stay within when it comes to the price-to-earnings ratio (P/E)?

Recommended: How Market Capitalization Impacts Stock Value

Most screeners offer several filters to choose from, so you can find stocks at the price you want, or in a designated industry, or within a certain level of volatility. There are several well-reviewed free screeners available that may suit your needs as a beginner, including Zacks, FINVIZ, Yahoo Finance, TD Ameritrade, and TC2000. Or you might decide to pay for a subscription service that offers more in-depth analysis.

Even if you use a screening tool, it can be useful to do your own stock research as well. There are plenty of online sites that can help you learn more about how to trade stocks and calculate stock values. And many brokerages, including SoFi, provide users with educational resources and newsletters.

In addition, the Securities and Exchange Commission (SEC) requires all public companies to file financial documents with data that could help you further assess a stock’s value. You can use the SEC’s Electronic Data Gathering, Analysis, and Retrieval system, EDGAR , to access that information.

How Do You Feel About Risk?

How much risk are you willing to take when trading stocks online?

If you’re OK with a white-knuckled, stomach-churning roller-coaster ride—and you’re willing to lose everything on an investment—you can throw caution to the wind. But if you’re hoping to make money without chronic anxiety, you’ll probably want to put some strategies in place to better manage your risk. That might include:

Knowing How Much You Can Afford to Lose

Do you have your financial bases covered (with an emergency fund, for example, and good insurance that will cover you if an unexpected health, home, or automobile expense pops up)? Are you current on your bills, and are you socking away some money for retirement? Even if you’re feeling pretty financially secure, you may want to set a clear limit on how much you’ll spend on any stocks that might expose you to more volatility and, therefore, a greater potential for loss.

Keeping Your Emotions in Check

Thanks to 24/7 access to market news, and instant reactions on social media, it can be tough to tune out distractions that can lead to knee-jerk trading moves. Greed is a tough emotion to ignore when a friend or co-worker shares a hot stock tip. And fear can easily get the better of you when you watch your favorite stock suddenly drop.

As you begin trading, you may consider a journal to document what you did and why you did it, and measure your performance against a benchmark index like the S&P 500. Reviewing those notes could help you analyze and improve how you react to changes in the market. (You’ll also want to keep good records so you can manage the tax consequences of any gains and losses in your brokerage account.)

Diversifying Your Portfolio

It’s one thing to occasionally take a small gamble on a trendy stock. It’s another to put all your money into just one stock (even a Blue Chip), or one sector, or one asset class. Keeping a balanced mix of investment types could help lower your risk—and make following your gut once in a while a little less gut-wrenching.

Again, this is where ETFs or fractional shares can come in handy. It also may be useful to work with an advisor to establish an appropriate asset allocation strategy and set up a plan that helps keep you on track as you make moves on your own.

Recommended: Differences in Speculation and Investing

What Type of Trade is Right for You?

When you’re ready to start using your broker’s website or app to buy and sell stocks, you’ll see there are a few different options for order types, which dictate how your trade goes through.

The type of order you use will likely vary from one situation to the next, depending on how many stocks you’re hoping to buy or sell, how liquid the stocks in question might be, or if the stock is currently under- or over-valued. And once you get more comfortable, you may want to add more strategies (such as options and futures) to your trading repertoire. So it’s a good idea to be well-versed in all the possibilities, their pros and cons, and how they might work in various scenarios.

The two most common orders are:

Market Orders

If you place a market order to buy, you’re saying you’ll purchase the stock “at market,” or at the current lowest asking price. If you place a market order to sell, you’re saying you’ll sell for whatever the highest bidding price is at that time. Because you aren’t holding out for a better price, brokers can generally fill market orders pretty quickly.

Limit Orders

If you place a limit order, you’re telling your broker in advance the price you want to get on the trade. If your broker can get the price you want (or better), they will execute the trade. But if no one is buying or selling at the price you’ve set, the trade won’t happen.

Ready to Get Started?

If you’re feeling overwhelmed, you may want to practice a bit using a free stock-trading simulator that could help you become more fluent in market terms and actions. But with your online brokerage account funded, you also could begin making small trades to get your feet wet and see how it feels.

The Takeaway

Once you begin trading stocks online, you’ll probably be able to gauge pretty quickly what works for you and what doesn’t, both financially and psychologically. Learning the basics of online trading can up your comfort level even before you get started, but executing some money-making trades will likely build your confidence. (Making some not-so-great trades could also help you finetune your process.)

With innovative trading tools like SoFi Invest® brokerage platform, you can start slowly. With SoFi Invest, you’ll have a variety of investment alternatives to choose from. And you can count on SoFi’s educational resources, real-time investing news, and advisors for help when you need it.

Learning how to trade stocks is exciting. Get started with a SoFI Invest account

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
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Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.
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