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Student Loan Debt Statistics in 2024

Pursuing higher education is a worthwhile act no matter the cost, but the cost does play a role. Student loan debt statistics point to a total outstanding balance of $1.745 trillion.

Knowing how much student loan debt is potentially on the way can help students and their parents better prepare to manage the costs of higher education. So, how much student loan debt is normal? Let’s take a look at some statistics about student loan debt that can shed some light for potential borrowers.

Overview of Student Loan Debt in America

Before we dive into American student loan debt statistics, it’s important to note that these numbers are just averages. How much student loan debt someone stands to accumulate depends on many different factors such as school choice, living arrangements, and the type of student loan they take out.

Total Outstanding Student Loan Balance

Let’s start our examination of statistics on student loan debt in America by getting an idea of the bigger picture. As noted earlier, American borrowers amassed over $1.745 trillion worth of student loan debt as of June 2024, according to the Federal Reserve.

Average Student Loan Debt per Borrower

The College Board found that as of March 2023, 32% of federal loan borrowers had debt under $10,000. Another 21% held student loan balances between $10,000 and $19,999, and 22% held balances between $20,000 and $39,999.

Student Loan Debt by Education Level

The type of degree a student pursues can influence how much they spend on their education and how much they need to borrow. These statistics for student loan debt by degree can help students determine how far they want to take their education or how much they need to save to avoid student loan debt based on their degree goals.

Bachelor’s Degree Debt Statistics

Many students choose to start and stop their higher education journey with a bachelor’s degree.
For the 2021-22 school year, 51% of bachelor’s degree recipients from public and private nonprofit four-year institutions graduated with debt, averaging $29,400 per borrower.

Among public four-year institution graduates, 49% had federal loans with an average debt of $20,700, while 52% of private nonprofit institution graduates had federal loans, averaging $22,200.

The average private student loan debt is $34,600 per borrower at public four-year institutions and $44,600 at private nonprofit institutions.

Master’s Degree Debt Statistics

Once students choose to pursue a degree higher than a bachelor’s, the student loan debt begins to mount. For students in class of 2019-20, 13% of master’s degree recipients borrowed $100,000 or more to finance their undergraduate and graduate education.

Recommended: How to Live with Student Loan Debt

Doctoral Degree Debt Statistics

A doctoral degree is another option students have for continuing their college education. Like the master’s students, 13% of doctoral degree recipients needed to borrow $100,000 or more to cover the total costs of their college education.

Repayment Challenges and Delinquency Rates

Based on how much student loan debt borrowers have on average, it’s easy to see why some borrowers may struggle with repaying their student loans on time. A delay in payments can lead to delinquency. Student loan delinquency occurs when a borrower fails to make a scheduled payment on their loan by the due date. If the payment is late for an extended period, the loan can default, leading to more severe financial consequences, such as a hurt credit score or the debt entering collections.

Percentage of Borrowers in Delinquency

How many borrowers find themselves struggling with student loan payments? In October 2023, student loan payments that were paused during the pandemic resumed. According to the Department of Education, at that point about 30% of borrowers were past due on student loan payments (this accounts for about $290 billion in loans).

Factors Contributing to Delinquency

Avoiding delinquency is easier when the borrower understands what it means to be delinquent on a loan account. If a borrower fails to make payments on time (whether this is payment number one or the final one), the loan eventually falls into default.

Many borrowers struggle to keep up with student loan payments while juggling other important expenses like housing, groceries, and transportation. With federal student loans, it’s possible to sign up for a repayment plan based on your income (and to enjoy other perks like student loan forgiveness programs). These income-driven repayment plans can make it easier to stay on budget, as they tend to result in smaller monthly loan payments.

A word of warning — income-based repayment plans often mean a longer loan term, which leads to the borrower paying more in interest overall. Whenever possible, paying off a student loan early can lead to major interest savings.

Private student loan lenders tend to be less flexible when it comes to repayment, but if a borrower is struggling to make payments on time, it’s always a good idea to ask for support.

Impact of Student Loan Debt on Life Milestones

When a borrower has to manage student loan debt payments, their monthly budget has less room in it to support their other financial goals — many of which can affect when they can achieve certain important life milestones.

For example, the National Association of Realtors found that 40% of consumers with student loan debt don’t have an emergency fund of $500. It’s easy to see how that level of financial strain can push back meeting goals like buying a home or getting married.

Homeownership Rates

Speaking of buying a home, 46% of student loan borrowers delayed moving out of a family member’s home after college, and more than half (51%) put their goals of buying a home on hold.

Delayed Marriage and Children

Family planning in particular becomes more tricky when navigating repaying student loan debt. Because of their student loan debt burden, borrowers reported delaying:

•   Having a long-term partner (12%)

•   Getting married (12%)

•   Starting a family (14%)

•   Adding to their existing family (10%)

Retirement Savings and Planning

Retirement may feel eons away to college students and new graduates, but it’s never too soon to start saving for a happy retirement. Unfortunately, 26% of student loan borrowers reported they haven’t been able to afford to contribute to a retirement account at all.

The Takeaway

Student loan debt doesn’t need to scare anyone away from pursuing higher education if that is something they dream of pursuing. That being said, knowing what that debt burden can look like can help students make more strategic decisions about where they go to school, how much they borrow, and how they plan to pay it off.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

What is the average student loan debt for bachelor’s degree holders?

Over half (51%) of bachelor’s degree recipients from public and private nonprofit four-year institutions have student loan debt, with an average debt of $29,400. Specifically, graduates from public four-year institutions had an average federal debt of $20,700, while those from private nonprofit institutions averaged $22,200.

Which degree level tends to have the highest student loan debt?

Borrowers who pursue a professional degree tend to borrow the most. According to the Education Data Initiative, the major with the largest median debt is Doctor of Pharmacy at $310,330.

How do student loan debt statistics vary by region or state?

Student loan debt statistics show significant variation by region and state. For instance, in New Hampshire, the average student loan debt is $39,928, with 70% of borrowers having debt, while in Utah, the average is $18,344, and 39% of borrowers carry debt.

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SOISL-Q324-095

For college students, few things are more welcome than extra money. And surprisingly, those additional funds might be from your school in the form of a college refund check.

Colleges sometimes issue refunds to students, and the amount can be thousands of dollars, depending on your situation.

Are you eligible for a refund from your college, and if so, how long does it take to get your money? Read on to learn more about college refund checks.

What Is a Refund Check From a College?

A refund check is typically issued by your college or university when your financial aid covers more than what you owe for tuition, room, board, and fees. Here’s how that can happen: When you receive financial aid, the aid amount is based on your college’s cost of attendance (COA). The COA is an estimated amount, however, and sometimes the actual price turns out to be less than the amount you may have been awarded in scholarships and borrowed through student loans. In that case, your school sends you a refund check.

For example, let’s say you received $15,000 in aid for the semester, but your school’s tuition and fees were $12,000. In this case, you’d get a $3,000 refund.

When you are owed a refund check, your college or university may send you a paper check in the mail, directly deposit the money into your bank account, or credit your school account (the credit can be applied for the next semester’s tuition or other school-related expenses).

Although it’s exciting to get money back, student loan refunds are typically not free money. Unless the refund comes from leftover funding from a grant or scholarship you received, these funds are likely to be part of the student loan you borrowed, and they will need to be repaid with interest. So it’s important to use your refund wisely.

Refund Check Process

The process for getting a refund check varies from school to school, but this is typically how it works:

1.    Financial aid is disbursed at the beginning of the semester. This is when federal student loan funds, grants, scholarships, and private student loans are sent to your school and applied to your tuition, room, board, and fees. To make sure your disbursement happens promptly, register for all the classes required to get your financial aid, and sign the Master Promissory Note (MPN) for your federal Direct subsidized and unsubsidized student loans.

2.    Your school should notify you when the disbursement happens. If there is money left over after that, your school will issue a refund.

3.    You may receive a paper refund check or the money may be directly deposited into your bank account (you can sign up for direct deposit through the online portal for your school account). The refund might also be credited to your college account, in which case it won’t be sent to you. Instead, the credit will be applied to future school costs like tuition.

College Refund Check Dates

Schools typically disburse financial aid at the beginning of a semester. After they disburse your funds, if they determine that you are owed a refund, they will start the refund process. The time it takes to receive a college refund check varies from school to school. Some schools issue refunds within several days; others take 14 days. Contact with your college’s financial aid office to find out the timeline.

For freshmen, the college refund check process may take longer. First-year undergraduates who are taking out student loans for the first time may experience a 30-day delay after the first day of the school’s waiting period before their college disburses their loan funds. Not every school uses this 30-day rule, though, so check with your school to find out.

College Refund Check Status

To check on the status of a college refund, log into your school account through the online portal to see if the refund is noted on your account. If it is, but there’s no information listed about how long the refund might take, contact the school’s financial aid office to inquire about the status of your refund check.

Refund Check Problems

If you believe you are owed a refund but the money hasn’t landed in your account, there may have been a snafu. Some possible reasons a college refund check could be held up include:

•   Late paperwork. If you filed your Free Application for Federal Student Aid (FAFSA) late or you waited to apply for student loans, you might experience a delayed refund check. The financial aid office at your college or university may be able to give you an update on the status of your refund and when you might expect it.

•   Incorrect paperwork. If you forgot to complete a section of your paperwork or missed a signature on your financial aid forms, this could delay the process. Fix the mistakes and submit the correction, then double check with the school’s financial aid office to make sure everything is in order.

•   Regular processing delays. It takes time for colleges and universities to implement financial aid disbursements and then to pay out any necessary refunds, especially at the busy start of the school semester. These may just be normal delays, but of course it doesn’t hurt to contact the school to find out.

When Will I Get My College Refund Check?

The dates for refund checks vary by the school and their financial aid disbursement process. The type of aid you’re being refunded for may also factor into the equation.

For example, in 2024, Jackson College in Jackson, Michigan, mailed or deposited Pell Grant check refunds on September 13. Loans, however, were disbursed by the school in two waves. For the first loan disbursement, refunds were sent on October 4, 2024. For the second disbursement, refunds go out on November 1.

As you can see, how a school handles this process affects when you’ll receive a refund. Every school’s dates and processes are different, so check with your college to find out the specifics.

Do I Get a Refund Check Every Semester?

You might get a refund check every semester you’re in college, but it depends. You must submit the FAFSA each year, which could affect the amount of aid you receive. That, in turn, can determine whether or not you receive a refund.

Recommended: Student Loan Forgiveness Guide

What Is the Average College Refund Check?

A college refund check might be hundreds or thousands of dollars. The refund amount depends on a variety of factors, including your school’s estimated COA versus the true cost. Other factors include the type of financial aid you receive and how much you get. Each student’s situation is unique.

And remember, a bigger refund is not necessarily better. If the refund is from loan funds, you’ll have to repay that money eventually, along with the rest of your student loans. A student loan payment calculator can help you figure out how much you might owe and help put things in perspective.

Things to Do With a College Refund Check

Getting a college refund check is exciting, and you may be tempted to spend the money on a vacation or some new clothes. However, since those funds are supposed to be for your education — and you may very well have to repay it — think carefully about how you spend it. Some ideas include:

•   Start paying your student loans. You can begin repaying your student loans anytime — you don’t have to wait until the six-month grace period after you graduate. Making payments on your loans now could give you a head start on getting out of student loan debt.

This is especially true if you have loans that accrue interest while you’re in college, like federal Direct unsubsidized loans. Depending on the federal student loan interest rates, the amount of interest you might accrue over time may be substantial if you don’t begin paying them off. You can even just pay down the interest amount.

•   Put the money toward your tuition bills. You can allocate a college refund to next semester’s tuition. You might also use it for other education-related expenses, such as books or supplies.

•   Pay off other debt. Another option is to use the money to help pay off high-interest debt, such as credit card debt. With interest rates of approximately 24%, this type of debt can add up quickly if you don’t begin tackling it.

•   Return the refund. You don’t have to accept a college refund check. If the money is from federal student loans, you can send it back to the Department of Education, which could help reduce your student loan debt. As long as you return it within 120 days, you won’t pay interest or fees on the sum. To return the refund, call your college’s financial aid office to see if they can help. If they are unable to, contact your loan servicer.

Recommended: Student Loan Debt by Major

The Takeaway

You may be eligible for a college refund check if your financial aid amount was more than the actual cost of your tuition, room and board, and other fees. The check may be mailed to you or deposited directly in your bank account, or the amount may be credited to your college account for future school costs. The length of time it takes to receive a college refund depends on your school, among other factors, and it generally takes between several days to two weeks.

One way to use a college refund is to start repaying your student loans, especially if interest is accruing on the loans while you’re in school. And keep this in mind: If the interest rates on your student loans are high, one option is to refinance student loans later on for a lower rate and better terms, if you qualify. Just be aware that refinancing federal loans makes them ineligible for federal benefits, such as income-driven repayment.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

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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.

SOSLR-Q324-039

Your college transcript is an official record of your academic progress. It’s a vital document that may be used to verify the advanced education you completed when you’re transferring to a new school or securing employment. However, until recently, some colleges would withhold transcripts if a student owed them money.

That practice changed in July 2024, when the Department of Education finalized a regulatory provision to provide students with greater protections regarding academic transcript withholding.

Learn more about how the new regulation works and what it might mean for you.

Legal Considerations

Before the new regulatory change went into effect, many colleges would withhold transcripts as a way to try to collect unpaid debts a student owed. The Consumer Financial Protection Bureau (CFPB) flagged the practice as a debt collection strategy that harms former students, both academically and for long-term earning potential.

Federal and State Laws

On October 31, 2023, the Department of Education published its final rule changes under the Higher Education Act of 1965. Among the changes was one that limits colleges that administer Title IV federal aid, including federal student loans, federal grants, and work-study programs, from transcript withholding practices.

The new provision states that colleges cannot hold transcripts that include credits a student paid for using federal financial aid.

For example, let’s say you’re a graduate of a college that administered federal financial aid to you while you were enrolled, and you used your financial aid award to pay for school courses. In this scenario, you’re entitled to receive an official transcript of any credits or hours that were paid for by federal money.

The new provision also states that colleges can’t withhold transcripts due to an unpaid debt that resulted from misconduct or fraud at the institution or an error in the way the school administered the federal aid.

Some states have already banned or restricted college transcript holds. According to a 2024 survey by the American Association of Collegiate Registrars and Admissions Officers (AACRAO), the following states restrict — or completely prohibit — colleges from withholding students’ transcripts:

•   California

•   Colorado

•   Connecticut

•   District of Columbia

•   Illinois

•   Indiana

•   Louisiana

•   Maine

•   Maryland

•   Minnesota

•   New York

•   Ohio

•   Oregon

•   Washington

Additionally, as of June 2024, six states (Massachusetts, Missouri, New Jersey, Oklahoma, Texas, and Virginia) have pending legislation that restricts academic institutions from holding transcripts from former students.

Challenges for Colleges and Universities

When the regulation changes were announced in October 2023, it was unclear how colleges would respond. The regulation explicitly prohibits transcript holds only for courses students paid for using Title IV federal funding. Therefore, institutions could technically choose to withhold course and credit information that was paid for using non-federal aid and provide the student with a partial transcript instead.

However, schools likely would have a difficult time separating which courses students paid for using Title IV funds versus other financial sources, such as private student loans. A 2024 Transcript Hold Regulation Impact survey by the AACRAO and Ithaka S+R, a higher education research firm, found that 77% of institutions surveyed said they would not implement a partial transcript policy. Furthermore, 69% of colleges said they would stop using transcript holds as a means of recouping students’ unpaid balances.

Recommended: Student Debt by Major

Common Reasons for Transcript Holds

Colleges and universities have typically withheld transcripts for various reasons. An official transcript might be withheld due to unpaid tuition and fees, past-due library fines, or campus parking citations. A transcript could also be withheld due to disciplinary actions resulting from a violation of the school’s code of conduct.

A student’s unpaid debt doesn’t have to be in the thousands, or even hundreds, of dollars for institutions to hold back transcripts. A study by the AACRAO and Ithaka S+R found that 64% of colleges withhold transcripts because of unpaid balances that are less than $25.

Impact on Students

Not having timely access to academic transcripts can result in delayed or missed opportunities for students in furthering schooling or in their careers.

Career and Education Consequences

Ramifications caused by a withheld transcript could be significant and might include:

•   Prevent or delay a student’s admission into a new school. Without their transcript, students who want to transfer to a new school or continue their education later in life will have a harder time proving the academic credits they’ve earned. Not being able to access official transcripts can prevent them from admission entirely or result in having to retake courses.

•   Derail potential job prospects. Certain professions require proof that you’ve completed specialized courses related to your career field. Having transcripts withheld can jeopardize job prospects that might unlock lucrative career opportunities.

•   Disqualify students from participating in professional exams. Some professional exams, like the American Bar Exam, require official college transcripts in order for students to take the test.

Financial Implications

A withheld transcript can also cost a student money.

•   Can impact future financial aid. Not having access to official transcripts due to an outstanding balance might make it difficult for students to apply for grants and scholarships that require a transcript for eligibility verification. Additionally, students whose transcripts were withheld due to a defaulted federal student loan would be ineligible for a new federal loan.

•   Can result in further financial inequity for under-represented groups. Advocates of the new federal regulation to limit transcript holds stated that the practice greatly impacts students who are already disadvantaged in the higher education system. This includes low-income students, first-generation college students, and students of color.

Recommended: Student Loan Forgiveness Guide

Strategies for Obtaining Withheld Transcripts

If you were denied your official transcripts and aren’t protected by the new Department of Education rule, there might still be a way for you to get your transcripts.

Negotiate with the Institution

It’s worth seeing whether you and your former school can find middle-ground when it comes to releasing your transcript. For example, you could offer to pay a portion of your unpaid balance now, in exchange for your transcripts, and agree to repay the reminder by an agreed upon date. A student loan payment calculator may be helpful in figuring out what you can afford.

The school administrator might also be willing to make an exception if you’re facing a hardship that makes paying back the debt difficult. For example, if you’ve been unemployed and a new job opportunity that requires the transcripts can help you regain steady income, the school might agree to work with you since the new job should help you repay what you owe.

Explore Payment Plans

Another approach to potentially unlocking your transcripts is to speak to your school administrator about its payment plan options. Prepare to show proof that you can financially follow through with the payment plan by having pay stubs or other proof of income on hand.

Propose a monthly payment that realistically is aligned with your budget, and a timeline of when you’ll fully repay the debt. As an additional show of good faith, consider offering to have payments automatically withdrawn from your bank account. This isn’t a surefire approach, and the institution may decline your request for a payment plan, but it’s worth exploring.

Alternatives and Solutions

If none of the above methods works for you, there are other options you can pursue.

•   Pay what you owe. Find out how much your unpaid debt to the school is. If the amount is within your means, consider paying it and getting out of student loan debt to avoid delays if you need access to your transcripts.

If your loan payments are challenging to make, you might want to consider refinancing student loans. With refinancing, you replace your old loans with a new private loan, ideally one with lower interest rates and more favorable terms. This could make it easier to manage your payments. Just be aware that refinancing federal loans means they are no longer eligible for federal programs and benefits.

•   Request an unofficial transcript. In some cases, such as when an employer wants to verify that you took a particular college course, an unofficial transcript from your school might suffice.

•   Submit a complaint. If your college is withholding your transcripts because you owe money, but you believe you’re protected under the new transcript withholding provision, you can file a complaint with the CFPB.

The Takeaway

The new regulation by the Department of Education regarding the withholding of college transcripts is a win for the millions of students who use Title IV federal financial aid to fund their education. These students are now generally protected from colleges withholding their transcripts as a debt collection practice.

However, colleges still have a limited scope in which they can deny transcripts. Students who’ve paid for their education using private student loans, for instance, may find their transcripts withheld if they owe the school money. Students looking for manageable ways to pay off their loan debt — and therefore gain access to their transcripts — may want to explore student loan refinancing, especially if they can qualify for favorable rates and terms that might make repayment easier.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Is it legal for colleges to withhold transcripts?

As of July 1, 2024, a new regulation from the Department of Education states that colleges can’t hold transcripts for courses that students paid for using federal aid. This rule applies whether the student has an unpaid balance, like campus parking fines, or a defaulted federal student loan.

How long can a college withhold transcripts?

A newly enacted federal law limits colleges from holding your transcripts. This rule applies to students who received and paid for their college courses using Title IV funding, like federal Direct Loans and through the federal work-study program.

Can I get my transcript if I owe money to the college?

A new federal regulatory change that went into effect on July 1, 2024 says that students who paid for their courses using federal money have a right to their academic college transcript. However, colleges can hold transcripts due to balances on the student’s account if courses were paid for using non-Title IV aid.

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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.

SOSLR-Q324-035

If you enrolled in a college, university, or career school based on misleading information from the school, or you were the victim of other types of misconduct by the institution, you can apply to the government to have your federal loans forgiven under a process known as Borrower Defense Loan Discharge.

If your borrower defense application is approved, a discharge means you will no longer have to repay your federal student loans. In some cases, you may also see reimbursement for federal loans you’ve paid up to now, including interest on the loans.

Understanding Borrower Defense to Repayment

The Borrower Defense to Repayment program has made a difference for a great many people. As of October 2024, the Department of Education (DOE) had forgiven $28.7 billion worth of debt for more than 1.6 million borrowers who were cheated by their schools, saw their institutions precipitously close, or were covered by related court settlements.

Borrower defense discharges apply only to federal student loans that are Direct Loans or can be consolidated into a Federal Direct Consolidation Loan, including Federal Family Education (FFEL) Program loans, Federal Perkins Loans, and Parent Loans for Undergraduate Students (PLUS).

Borrower defense discharges don’t apply to private student loans.

Definition and Purpose

Borrower defense loan discharge, which is sometimes shortened to “borrower defense” or “borrowers defense,” is a federal regulation that allows students who can demonstrate that they have been defrauded by their schools to get forgiveness of their debt.

According to the formal definition of borrower defense, people can apply who were “enrolled in a school or continued to attend a school based on misleading information from the school or other misconduct covered by the regulation, and suffered a detriment that is of a nature and degree warranting a full discharge of their applicable federal loans.”

Historical Context and Recent Developments

Borrower defense began in the 1970s. At that time, the federal government created an interagency committee to examine and address the growing problem of “educational abuses.” An amendment to the renewal of the Higher Education Act in 1993 codified borrower defense to repayment into the Act.

The law gives the Secretary of Education the power to determine when and under what circumstances valid defenses against repayment of federal student loans can be granted.

The Department of Education received a modest number of borrower defense claims in the 20th century. However, in the last 20 years, borrower defense has gained prominence. An official administrative process for borrower defense was created after the 2015 collapse of Corinthian Colleges, which affected tens of thousands of students.

The most famous borrower defense case is a class-action suit known as Sweet v. Cardona (formerly Sweet v. DeVos). On June 22, 2022, the Department of Education and the plaintiffs in the case agreed to a $6 billion settlement. Those payments are still being processed as of late 2024.

Recommended: Student Debt by Major

Eligibility Criteria for Borrower Defense

There are six different grounds that may qualify an individual for a borrower defense discharge under the 2023 Borrower Defense Regulation, which sought to strengthen protections for borrowers. According to the Federal School Aid division of the DOE, the six criteria are:

1. Substantial Misrepresentation

A school makes a substantial misrepresentation when it lies to or misleads students about its educational services, financial charges, or the employability of its graduates, and that information is central to a student’s decision to enroll, stay enrolled, or take out loans.

2. Substantial Omission of Fact

A school makes a substantial omission when it suppresses, conceals, or omits important information that a reasonable person would have considered in deciding to enroll, stay enrolled, or take out loans.

3. Breach of Contract

A breach of contract has occurred when you have an agreement with your school and your school does not do what it promised to do in your agreement. The agreement must have been made in exchange for your decision to attend or continue attending, your decision to take out loans, or for funds disbursed in connection with a loan.

Recommended: Do Student Loans Count as Income?

4. Aggressive and Deceptive Recruitment

A school engages in aggressive and deceptive recruitment when it:

•   Demands or pressures you into making enrollment or loan-related decisions immediately

•   Takes unreasonable advantage of your lack of knowledge about, or experience with, postsecondary institutions, postsecondary programs, or financial aid

•   Discourages you from consulting with others before making an enrollment or loan-related decision

•   Obtains your contact information through websites or other means that falsely offer assistance to individuals seeking federal, state, or local benefits; falsely advertise employment opportunities; or present false rankings of the institution or its programs

5. Judgment

This means that a judgment has been issued against your school where a court has ruled that your school violated the law. This judgment must be based on your school’s act or omission relating to the making of a loan or on the provision of educational services for which the loan was provided. It’s important to be aware that a settlement is not a judgment.

6. Prior Secretarial Action

You may be approved for a borrower defense discharge based on a decision by the DOE to revoke your school’s provisional program participation agreement or deny its recertification to participate in the federal student aid programs, if that action is based on conduct that could give rise to a borrower defense.

Application Process

When you begin the application process, you’ll be asked to create a StudentAid.gov account so you can submit, review, and manage your borrower defense application online.

Alternatively, you can download a PDF version of the borrower defense application and submit your completed application by mail to the address listed on the application.

According to regulations, your application must meet the “materially complete” standard to be considered. Among the things you will need to provide are:

•   A description of what your school did or failed to do that is covered by the kinds of misconduct that qualifies for borrower defense discharge.

•   The names of the school or representative of the school that committed the misconduct and when the misconduct occurred.

•   How the misconduct impacted your decision to attend the school, to continue attending the school, or to take out the loan for which you are applying for a defense to repayment

•   A description of the harm you experienced because of the school’s misconduct.

Under the 2023 regulation, the Department of Education has three years to make a decision on your application after receiving it and determining that it is materially complete. However, the three-year period is paused if your application becomes part of a group application process at any time.

Potential Outcomes

A borrower defense claim can result in full loan forgiveness, partial loan forgiveness, or no loan forgiveness. A refund may include both principal and federal student loan interest. The remaining loan balance may also be discharged, meaning you won’t have to repay it.

However, your request for borrower defense may not be approved. If the evidence does not meet the DOE’s standard, your claim will be denied. You won’t receive a discharge of your federal student loans, and the forbearance or stopped collections period will end for all of your loans. You’ll be responsible for repaying these loans.

Alternatives to Borrower Defense

If you’re trying to get out of student loan debt, and you are denied borrower defense, you may qualify for a deferment or a forbearance. With both of these options, you can temporarily suspend your federal loan payments. However, there is a difference between the two options related to the interest on your loans. In deferment, interest doesn’t accrue on some types of Direct loans, while during a forbearance, interest accrues on all Direct loans.

If you are seeking student loan forgiveness through an income-driven repayment plan over a period of years, there are several programs that exist to help lower your monthly loan payments based on how much money you earn and your family size.

Another route to explore is refinancing your student loan to potentially obtain a lower interest rate or more favorable terms of repayment. When you refinance student loans, you replace your old loans with a new loan from a private lender. It’s important to know that if you refinance federal loans, they will no longer qualify for federal student loan forgiveness.

As you consider different methods to manage your student loan debt, a student loan payment calculator can help you determine what your loan payments might be in various scenarios.

The Takeaway

Borrower defense can be a path to federal loan forgiveness or even repayment for people who can prove misconduct on the part of their school. As of October 2024, the Department of Education had forgiven $28.7 billion for more than 1.6 million borrowers who suffered from misconduct by their schools, saw their institutions precipitously close, or were covered by related court settlements. The application requires proof of misconduct and the harm it caused you, and the Department of Education can take three years to decide whether to approve it.

If you don’t qualify for borrower defense to repayment, there are other options you can pursue for help repaying your student loan debt. These include deferment, forbearance, or student loan forgiveness, if you qualify.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

What types of school misconduct qualify for borrower defense to repayment?

The types of school misconduct that can lead to a successful case includes an institution lying to or misleading borrowers about its educational services, financial charges, or the employability of its graduates.

How long does the borrower defense to repayment process take?

The Department of Education (DOE) has three years in which to review an application for borrower defense. The DOE says, “We have three years to make a decision on your application once we determine that your application is materially complete. The three-year period is paused if your application becomes part of a group claim process.”

Can private student loans be discharged through borrower defense to repayment?

No, private student loans are not eligible for this program. Borrower defense to repayment is only applicable to federal student loans.

Photo credit: iStock/PeopleImages

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.

SOSLR-Q324-034

When you enroll in college, the last thing you expect is for your college to close. College closures are a real possibility, however — according to BestColleges.com, at least 72 public and nonprofit colleges have closed or merged since March 2020, with private nonprofit school closures impacting nearly 46,000 students.

If your college closes, there are steps you can take to transfer to another school or apply for a student loan discharge. Here’s what to do if your college closes and how to handle your student loans.

Understanding the Impact of College Closure

A college closure can affect your educational progress and your student loans. Here’s what to expect.

Immediate Effects on Your Education

If your college closes, you’ll no longer be making progress toward your degree. Classes may be canceled mid-semester, and you won’t earn the credits you were working toward. If you’re interested in continuing your education, you’ll have to see if your college has a “teach-out” agreement with another school, which is a contract that allows students to finish their program of study with the other school, or if you can transfer your credits to another institution.

Potential Consequences for Your Student Loans

If your college closes, do you still have to pay off your student loans? That depends.

You may be eligible for federal student loan discharge through the Closed School Discharge or Borrower Defense to Repayment program. However, if you accept a “teach-out” plan to complete your degree at another school, you won’t be able to discharge your student loan debt.

There’s also no guarantee that you’ll qualify for a Closed School Discharge or Borrower Defense, and the process may take a while. While you’re waiting, you’ll have to start paying back your student loans once the six-month grace period is over.

If you have private student loans, there is no universal closed school discharge for these loans. Contact your lender to see how they might be able to help you.

Steps to Take Immediately After College Closure

Having your school close unexpectedly can feel like a nightmare, but there are steps you can take to get back on track.

•   Gather your school records: Request your school records as soon as possible, especially if you’d like to transfer to another school. These include your transcript, a record of your credits and degree progress, financial aid information, and any other relevant communications you’ve received from your school.

•   Find out about “teach-out” options: Some colleges offer a “teach-out” option, which lets you immediately transfer to a different school and pick up where you left off. Make sure to research the new school before you accept this agreement, however, to ensure it has a good reputation and fits your academic and financial needs. Be wary of unaccredited programs, as they may not offer a high-quality education or strong student outcomes.

•   Research credit transfers to other schools: You can also explore alternative colleges for finishing up your degree. Consider prioritizing accredited programs, since accreditation suggests that a college meets high standards for quality and is eligible for federal financial aid. Find out if your credits will transfer to the new college so that you don’t have to start from scratch.

•   Contact your loan servicers: If you took out student loans, reach out to your loan servicers to notify them about the school closure and find out about next steps. You might find that your loans will enter repayment in six months unless you enrol at least half-time in another school.

•   Explore student loan discharge options: You may be eligible for a discharge of your federal student loans if your school closes and you don’t accept a “teach-out” transfer. As previously mentioned, private student loans don’t have as many options, but it’s worth contacting your lender to find out.

Recommended: Federal Student Loan Interest Rates Explained

Student Loan Discharge Options

Borrowers who experience a college closure may be eligible to have their federal student loans discharged through two programs:

•   Closed School Discharge: With this program, you may be able to have your federal student loans discharged if you were enrolled when (or withdrew shortly before) your college closed. New rules to streamline the discharge program were scheduled to go into effect in mid-2023, but due to legal challenges, the Department of Education will process closed school discharge applications under pre-2023 rules.

•   Borrower Defense to Repayment: This program offers federal student loan discharge to borrowers who were misled or defrauded by their schools. Qualifying borrowers could also get reimbursed for amounts they already paid toward the loan, and request a removal of negative marks from their credit report. Similar to the Closed School Discharge program, however, the latest borrower defense rules have been blocked by a court injunction. Borrowers can still apply online for Borrower Defense Discharge, but the Department of Education will use old rules to determine eligibility.

Eligibility Criteria for Loan Discharge

To be eligible for the Closed School Discharge program, you must meet the following requirements:

•   Your school closed while you were enrolled, on an approved leave of absence, or had withdrawn less than 180 days prior

•   You will not be accepting a teach-out agreement or transferring your credits to a new school

•   You did not already graduate or complete your program

For Borrower Defense to Repayment, you might qualify if you can prove one of the following about your college:

•   Substantial misrepresentation: Your school misled you about its educational services, costs, or another important factor.

•   Substantial omission of fact: Your school concealed important information that would have impacted your decision to enroll.

•   Breach of contract: Your school did not do what it promised to do in its agreement with you.

•   Aggressive and deceptive recruitment: The college pressured you to act immediately on an enrollment or student loan decision or engaged in other aggressive recruitment practices.

•   Judgment: A court ruled that your school violated the law.

•   Prior secretarial action: The Department of Education revoked a participation agreement or financial aid recertification with your school.

Application Process for Loan Discharge

If you qualify for Closed School Discharge, your loan holder should send you an application that you can submit to your loan servicer. Alternatively, you can contact your servicer directly about how to apply.

If your grace period ends and your application is still under review, it’s a good idea to start making student loan payments. Otherwise, you risk damaging your credit and racking up late fees.

For the Borrower Defense program, you can apply online on the Federal Student Aid website. The application takes about three hours to complete.

You’ll need to sign in with your FSA ID and provide your school name, program of study, and enrollment dates. You’ll also have to give documentation to support your application for Borrower Defense.

But be aware that the process to get a student loan discharge from Borrower Defense is lengthy. According to the Department of Education, it can take up to three years to process and make a decision on your application.

Recommended: Student Debt Analysis by Major

Alternatives to Loan Discharge

Student loan discharge is not guaranteed, especially with the various legal challenges that have cropped up in recent years. Some alternatives to consider include:

•   Transfer to another school: You could accept a teach-out plan or transfer credits to another school of your choice to complete your program and earn your degree.

•   Pay back your student loans: Explore your options for repayment plans, such as the standard 10-year plan and income-driven repayment, along with these strategies for getting out of student loan debt.

•   Pursue loan forgiveness or repayment assistance: You may be eligible for student loan forgiveness or repayment assistance, depending on your profession and where you work.

•   Refinance student loans: Through student loan refinancing, you might qualify for a better interest rate or more favorable loan terms than you have now. Avoid refinancing federal student loans if you’re pursuing Closed School Discharge or another federal program, however, as doing so would make them ineligible for federal loan cancellation programs and other benefits.

Long-Term Considerations

Having your school close its doors is an extremely stressful situation, and it’s important to act quickly to obtain your transcript and other academic records. Once you’ve gotten your documents in order, though, take a deep breath and consider what comes next.

You can finish up your degree at another college and continue working toward your academic and professional goals. Rather than accepting a teach-out plan right away, do your own research on colleges and credit transfers to find the best place for you.

If you’d rather press pause on your education, or your credits won’t transfer, explore your options for federal student loan discharge. You’ll need to pay your student loans once your grace period ends, however, or you could end up with damage to your credit score. This student loan payment calculator can help you estimate your monthly and long-term costs.

The Takeaway

If your college closes while you’re enrolled, you may not have to pay your federal student loans thanks to the Closed School Discharge program. Alternatively, you can consider transferring your credits to a new school to finish up your education there.

If neither of these options is right for you, you can pursue loan forgiveness, repay your loans, or opt for student loan refinancing if you can qualify for favorable terms. Review all the alternatives to determine the best path forward for you, your education, and your financial situation.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Can I transfer my credits to another institution if my college closes?

You may be able to transfer your credits to another institution if your college closes, but it depends on the requirements of the school and program. For instance, some colleges may only accept credits from accredited colleges. Check with your target school to see if the credits you’ve earned so far would be transferable.

Am I eligible for student loan discharge if my school closes?

You may be eligible for federal student loan discharge through the Closed School Discharge program if your school closes. To qualify for this program, your school must have closed while you were enrolled, on an approved leave of absence, or within 180 days after you withdrew.

How do I obtain my academic records from a closed college?

If your college closes, contact school administrators as soon as possible to obtain your academic records. If this isn’t possible, reach out to your state’s agency that oversees higher education for help locating your records. Some schools allow you to order transcripts through the National Student Clearinghouse, so that might be another option for you.

Photo credit: iStock/Unaihuiziphotography

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.

SOSLR-Q324-031