Summary

If your school closes while you're attending or shortly after you withdraw, you may be eligible for a federal student loan discharge. Alternatively, you might be offered a "teach-out plan" to complete your education elsewhere. Choosing a path depends on your specific situation—each option has benefits and trade-offs that could impact your finances and educational future.

🚫 What To Do When Your School Closes

A sudden school closure can leave students stuck with incomplete degrees and significant debt. Fortunately, there are two main options: transferring to another school or applying for a closed school loan discharge. Transferring, especially under a teach-out plan, can help you complete your studies with minimal disruption. However, accepting a teach-out plan makes you ineligible for loan discharge unless you ultimately do not finish the program. On the other hand, if you decide to start fresh at a different institution or if you meet eligibility criteria, you could have your federal student loans entirely discharged. Do thorough research to understand your best move—especially if you're offered a teach-out plan—and act quickly to preserve your academic and financial progress.

Takeaways:

• Transfer or accept a teach-out plan to continue your education without interruption.

• Apply for a closed school loan discharge if eligible—this can eliminate your federal student debt.

• Choosing a teach-out plan makes you ineligible for loan discharge unless the plan is not completed.

• Transferring credits to a different school does not disqualify you from a discharge.

Key Terms

• Teach-out plan: An agreement allowing students from a closing school to complete their program at another institution.

• Closed school loan discharge: A federal student loan forgiveness program for students affected by school closures.

• Federal student loan servicer: A company that manages billing and services for federal student loans.

✉️ How to Apply for a Closed School Loan Discharge

If your school closes while you're enrolled or shortly after you withdraw, you may be eligible to apply for a closed school loan discharge. This benefit forgives all associated federal loans, refunds any payments already made, and removes the loan from your credit report. To qualify, the closure must occur while you’re enrolled or within 180 days of your withdrawal, and you must not complete your program. If eligible, you should receive an application automatically. If not, contact your loan servicer or download the application from StudentAid.gov. Be sure to continue making payments during the review period, as approved discharges will reimburse those payments. Additionally, discharged loan amounts are not considered taxable income by the IRS.

Takeaways:

• Eligible borrowers may have their loans erased and payments refunded.

• Automatic applications are sent, but you can request one from your servicer.

• You must continue payments during the application review process.

• Discharged amounts are not taxed federally.

Key Terms

• Loan discharge eligibility: Requirements that determine whether a borrower qualifies for loan forgiveness after a school closure.

• StudentAid.gov: The U.S. Department of Education’s website for federal student aid resources and applications.

🎓 Relief for Grants, Veterans, and Private Loan Borrowers

Certain groups of borrowers may be eligible for additional help after a school closure. Pell Grant recipients may have their grant eligibility partially restored. Similarly, GI Bill beneficiaries can work with the VA to reset their education benefits. However, private student loan borrowers have fewer protections. There is no universal forgiveness program for private loans, though some lenders may offer assistance. State-specific tuition recovery or student protection funds can also provide relief, depending on your state’s policies and programs. Contact your state’s post-secondary education agency for more information about available compensation.

Takeaways:

• Pell Grant and GI Bill benefits can be restored after a school closure.

• No guaranteed loan discharge exists for private student loans.

• State tuition recovery funds may offer some compensation.

Key Terms

• Pell Grant: Federal grants for undergraduate students with financial need.

• GI Bill: Education benefits provided to military veterans.

• Tuition recovery fund: A state-managed fund that reimburses students affected by school closures.

Conclusion

Experiencing a school closure can be unsettling, but you have options. You can transfer to another institution, participate in a teach-out plan, or apply for a federal loan discharge depending on your situation. Special programs also exist for grant recipients, servicemembers, and potentially even through state agencies. The key is to act quickly, research your options carefully, and protect both your educational path and financial well-being.