Schools close. It doesn’t happen every day, but it happens — and when it does, students are often left holding thousands of dollars in loans for a degree they never even finished. That’s where closed school discharge comes in.
If your school closes while you’re still enrolled and you don’t complete your program because of the closure, you may qualify to have 100% of your federal student loans discharged. That means cancelled. Erased. You don’t owe them anymore.
This isn’t some obscure loophole either — it’s an official federal program through the U.S. Department of Education. The whole point is that you shouldn’t be stuck repaying loans for an education you couldn’t finish through no fault of your own.
So what actually qualifies? The big one is this: your school closed while you were enrolled, and the closure is why you couldn’t complete your program. There’s also a window after you leave — so even if you withdrew shortly before the school shut down, you might still be eligible. The exact timing rules matter, so it’s worth checking the official details at studentaid.gov for your specific situation.
One thing to watch out for: if your school offers you a “teach-out” — basically an arrangement to finish your program at another school — and you decline it, that can affect your eligibility. So don’t just automatically turn that option down without understanding what it means for your loans.
Here’s the part that trips people up. According to the Consumer Financial Protection Bureau, if you qualify, the Department of Education can cancel your federal loans one year after your school closes — but this doesn’t always happen automatically, and the safest move is to apply. If you don’t take action, you risk staying on the hook. The application process goes through Federal Student Aid, and that’s your starting point.
Don’t wait too long either — get the process moving as soon as you can after the closure.
And just to be clear: this only applies to federal student loans. Private loans are a different story and generally don’t have the same protections.
If your school closed and you’ve been quietly stressing about those loans, this is worth looking into immediately.