Closed-School Discharge

When Your School Closing Can Cancel Your Loans

Closed-school discharge cancels the federal Direct Loans, FFEL Program loans, and Perkins Loans you took out to attend a school if that school closed while you were enrolled, or shortly after you withdrew, and you were unable to complete your program because of the closure (studentaid.gov). It is a “discharge,” triggered by the closure event rather than by payments or a fraud finding. The core idea is fairness: if the institution you borrowed to attend disappears before you can finish, the federal government can cancel the debt you incurred to enroll there.

The Eligibility Window and the Teach-Out Exception

Eligibility turns on timing and on whether you finished elsewhere. Generally you qualify if you were enrolled when the school closed, or if you withdrew within a defined window before the closure date, and you did not complete the program. The key exception is a “teach-out”: if you completed your program of study through a teach-out arrangement at another school or by transferring comparable credits, you typically are not eligible, because you received the education you borrowed for. Borrowers who took a partial transfer but did not finish should still screen — a partial completion does not always defeat the claim. Confirm the exact dates and rules that apply to your school on studentaid.gov.

The For-Profit Collapses That Drove Mass Discharges

Recent history is full of large for-profit failures that produced sweeping cancellations. The Ashford University and Zovio matter resulted in roughly $4.5 billion in cancellation for about 261,000 borrowers (ed.gov; studentaid.gov). ITT Technical Institute's collapse led to qualifying discharges for affected borrowers, and the Corinthian Colleges failure produced extensive relief as well. Across closed-school discharge and related Department actions, cumulative cancellations have reached roughly $34 billion for more than 1.9 million borrowers (ed.gov; studentaid.gov). These figures show the scale of the route — not a promise about any individual file.

Automatic vs. Application-Based Discharge

For some school closures, the Department of Education grants automatic closed-school discharges to borrowers who meet the criteria and do not re-enroll in a comparable program within a set period after the closure. For others, you must submit a closed-school discharge application to your loan servicer. Because the automatic process depends on the Department's records and the specific closure, it is worth verifying on studentaid.gov whether your school qualifies for automatic discharge or whether you need to apply — do not assume the cancellation happened on its own.

Screen It Alongside Borrower Defense

If your school both closed and engaged in misconduct, you may qualify for either closed-school discharge or Borrower Defense — and the right choice can depend on the timing of your withdrawal and what you can document. Many borrowers from collapsed for-profit chains fit both, so the two routes should be screened together. People's Justice is not a law firm and does not provide legal advice; we connect you with licensed attorneys, and we are not a government agency. We never charge an advance fee for cancellation, and we cannot promise that your loans will be discharged — the Department of Education makes that determination based on the closure and your records.