The following information outlines the eligibility requirements for closed school forgiveness. For specific information regarding submitting closed school claims, please refer to the Common Manual.
The Higher Education Act provides relief for borrowers who are unable to complete their programs of study due to the closing of a school. Borrowers who meet the following criteria may be eligible to have their loans discharged.
In most cases, to qualify for a closed school loan discharge, a borrower must complete, certify, and submit to his or her lender or guarantor Loan Discharge Application: School Closure form provided by the U.S. Department of Education (ED). This form includes the following statements:
- The borrower (or student for whom a parent obtained a PLUS loan) received any part of the proceeds of a FFELP loan on or after January 1, 1986, to attend a school that later closed.
- The borrower (or student) did not complete the program of study at the school for which the loan was obtained because the school closed while the student was enrolled or on an approved leave of absence, or the student withdrew within 90 days of the school’s closing.
- The borrower (or student) did not complete—and is not currently in the process of completing—the same or a similar program of study through a teach-out at another school, by transferring academic credits or hours earned at the closed school to another school, or by benefiting by any other means from the training provided by the closed school.
- The borrower (or student) agrees to provide, upon request, other reasonably available documentation (could include, but is not limited to, a transcript from the school, attendance records, report card or grade report, dated course work or other documentation that would establish attendance at the school within the prescribed time period) that demonstrates the borrower’s eligibility for discharge.
- The borrower (or student) agrees to cooperate with the U.S. Department of Education or its designee in any enforcement action or attempt to recover discharged loan amounts, and to transfer and relinquish to ED any right to a refund or discharged loan.
- The borrower certifies under penalty of perjury that all of the information provided by the borrower in the request and in any accompanying documents is true and accurate.
Lenders should note the following regarding closed school loan discharge:
- A borrower of a FFELP loan that was partially discharged under the closed school provisions outlined in DCL 98-G-159 is eligible to have the remaining balance of his or her loan discharged without meeting the requirements listed above.
- If a loan discharge is approved, the discharge cancels the obligation of the borrower to repay the outstanding principal, accrued interest, collection costs, and late fees on all eligible loans made for the student’s enrollment in the program of study being pursued when the school closed. It also qualifies the borrower for reimbursement of any amount paid voluntarily or through forced collection on the amount discharged.
- Loan discharge is not restricted to loans made for attendance at an eligible school that closed. If an eligible school or branch certified FFELP loan applications under an eligible school identification number, and the ineligible school or branch subsequently closed, those loans may qualify for discharge.
- A borrower is not eligible for loan discharge if the student’s program of study was terminated by the school, but the school did not close at that time. An entire school or location must close for a borrower to be eligible for loan discharge.
- A legally enforceable loan that has lost its guarantee as a result of a due diligence violation is eligible for discharge and claim payment if the borrower meets all discharge requirements. In processing such claims, a guarantor will not assess penalties for the due diligence violations.
The following is an overview of general lender activities when dealing with a closed school:
- A school must be included on ED's closed school list before a lender can file a claim on a borrower's loan based on the closing.
- If a lender is notified by the guarantor or ED, or receives reliable information from another source that a borrower may be eligible for a closed school loan discharge, the lender must immediately suspend all collection activities and must grant the borrower an administrative forbearance on the affected loan(s) while awaiting confirmation of eligibility for loan discharge. The forbearance must be for a 60-day period beginning on the date the Loan Discharge Application is sent to the borrower. Administrative forbearance is unnecessary for a loan in grace, forbearance or deferred status, unless that status is scheduled to expire before the end of the 60-day period. The lender may capitalize the interest that accrues during the administrative forbearance period.
- The lender must resume collection activity if the borrower fails to return a completed Loan Discharge Application within 60 days after the loan is sent to the borrower, or within 30 days after receiving notification that the loan is ineligible for closed school loan discharge.
- If, after review of the Loan Discharge Application, the lender determines the borrower appears to be eligible, a claim must be filed with the guarantor, using the FFELP Claim Form, within 60 days after receiving the completed Loan Discharge Application from the borrower.