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.
Key Points
• At least 72 public and nonprofit colleges have closed or merged since March 2020.
• Gather academic records immediately after a college closure to facilitate transfer to another institution.
• Contact federal loan servicers to understand the options, including potential loan discharge and repayment plans.
• Evaluate eligibility for federal student loan discharge through programs like Closed School Discharge and Borrower Defense to Repayment.
• With private student loans, contact lenders to see what assistance they may offer.
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.
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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.
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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.
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