By now, you’ve probably heard the news about the closing and recent bankruptcy filing announcement of Corinthian Colleges, one of the largest for-profit higher education organizations in the U.S. At its peak, the organization enrolled almost 80,000 students per year.
In April, the organization announced the immediate closing of its remaining 26 campuses, affecting nearly 16,000 students.
The coverage of these events, especially those that focused on the affected students’ loan debts, left many consumers confused about their responsibilities if their college should close. While the Corinthian situation is unique, the majority of the time you can expect to encounter one of the the following scenarios when it comes to student loans and college closings.
[Learn more about how college closings affect financial aid.]
My School Closed While I Was Attending
While most school closings are planned months , if not years , in advance, there have been situations where schools have closed suddenly with little if any notice to affected students. If you are attending or have recently attended a school that closes, you may be eligible to have your federal student loans discharged. To be eligible for this discharge, a borrower must meet all of the following criteria .
— You must have been enrolled in the school within 120 days of the school closing
— You must not have completed the course work required to receive the credential
— You must not be completing a comparable “teach-out” or transfer program at another institution
If you have federal student loans and meet these criteria, you can request a loan discharge application from your loan holder. While there is no time limit as to when a borrower must apply for this discharge, if the school closed some time ago, it may be difficult for the borrower to prove they met the criteria for discharge, particularly proving that they were enrolled within that 120-day window.
If your school closes, it’s always best to apply for the discharge right away, preferably before you start receiving bills for the loans.
My School Closed Before I Could Receive My Degree or Certificate
If you weren’t enrolled at the school within that 120-day window, or did complete the course work required to receive the credential, even if you didn’t receive the actual diplom a, then in most cases you are still required to repay your student loans.
If you feel that the school misrepresented their courses or outcomes in some way, or the close date being used doesn’t accurately reflect when the school ceased operations, federal student loan regulations do allow the Department of Education to make exceptions in some closed school situations.
[Get three tips for securing student loan forgiveness.]
I Completed My Degree or Certificate, but the School Closed Because it Was Committing Fraud
Some Corinthian alumni who are ineligible for a closed school discharge are pressuring the Department of Education to relieve them of their debt under a little-known regulation, sometimes called the “defense to repayment” rule, that exists under the direct loan program regulations.
This rule allows a borrower to have their loan discharged if it can be shown that the school did or claimed something that potentially violates state law. As far as the Student Loan Ranger is aware, this rule has yet to be enforced in the Corinthian or any other direct loan dispute.
In most cases, if a student had a dispute with the school, he or she would pursue action against the school, and use whatever relief received to pay off any loans. While we wait to see how the Department of Education will handle these claims for borrowers with direct loans, those with private or other types of federal loans that don’t qualify for a closed school discharge may have to do just that to have any chance of being let off the hook for their loans.
I Completed My Degree or Certificate, the School Probably Wasn’t Fraudulent, But I Didn’t Learn Anything Useful
The Student Loan Ranger regrets to inform you that not liking the school, not being able to find a job in your field or feeling like the quality of the education received is not what it could have been are generally not reasons to have your federal student loan discharged. The only exceptions are if the school misrepresents itself or the outcomes of the students who attend these institutions.
[Don’t fall for eight student loan repayment myths.]
What About Private Loans?
Private loans are tricky. There are generally no discharge options available, even in closed school situations. The Corinthian case is unique in that part of what the organization was cited for was the alleged predatory private loans the schools were offering students.
In an unprecedented event, the Consumer Financial Protection Bureau announced a settlement offer that would result in at least a 40 percent reduction in debt for these private loan borrowers. There has been no discussion of any type of relief being provided for those who took private loans from other sources.
Schools closing, especially without notice, are thankfully a rare occurrence. Most schools show signs of “illness” well before the event is announced, so doing your homework before choosing a school will increase your chances of never having to worry about dealing with debt, no degree and a locked, empty building where your college used to be.
If that does happen to you, your loan holder, regardless of what type of loan it is, can help you apply for any relief that may be available.
More from U.S. News
What to Know About College Closings and Financial Aid
Ask 4 Questions to Avoid Being Duped By a Student Loan Service
Explore Congressional Budget Proposals’ Impact on Student Aid
3 Times College Closings Can Affect Student Loan Repayments originally appeared on usnews.com
