Bankruptcy Law Blog

Saturday, March 11, 2017

If Your College Closed, You May Not Have To Repay Your Student Loans

It is generally true that education is a good way to better your job prospects and your future, but that is not always the case. Over the past few years it has become clear that some colleges are more concerned with making money than helping their students get a good education. Students who attend these sorts of schools end up with a degree that is worth less than the paper it is printed on, and a mountain of student loan debt.  

Student loan debt typically cannot be forgiven even if the debtor files for personal bankruptcy, so this debt is a real problem for a lot of people. Fortunately, there is some good news to share about student loan debt.

First, students who attended a college that has closed may be able to have their debt forgiven. There is a thing called the “closed school discharge” that allows certain students to have their student loans wiped away.

The federal Department of Education helpfully summarizes the eligibility criteria for program as follows:

"You may be eligible for a 100% discharge of your Direct Loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans under either of these circumstances:

  • Your school closes while you're enrolled, and you do not complete your program because of the closure. If you were on an approved leave of absence, you are considered to have been enrolled at the school.
  • Your school closes within 120 days after you withdraw.

You are not eligible for discharge of your loans if your school closes and any of the following is true:

  • You withdraw more than 120 days before the school closes.
  • You are completing a comparable educational program at another school
    • through a teach-out agreement with the school,
    • by transferring academic credits or hours earned at the closed school to another school,
    • or by any other comparable means.
  • You have completed all the coursework for the program, even if you have not received a diploma or certificate."

The Department of Education keeps a list of recently closed schools that students can look at to determine if their debt might be eligible for forgiveness through the closed school discharge.

If student loan debtors have questions about the closed school discharge, there is a wealth of information on the Department of Education website, but debtors should also feel free to reach out to an experienced bankruptcy attorney for advice, particularly if they are struggling with other types of debt as well.

Second, there are a handful of cases where the courts have forgiven student loan debt. These are few and far between, and it is difficult to know if a student’s debt will be forgiven without taking a really close look at his or her specific situation and comparing it to other students’ cases.

Debtors who have mostly student loan debt should talk with an experienced bankruptcy attorney before giving up hope that their debt can be forgiven.


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