Liabilities Associated with Closed School Discharges

Federal Student Aid
Liabilities Associated with Closed School Discharges

As explained in an Electronic Announcement posted on December 13, 2018, we have implemented certain provisions of the 2016 borrower defense regulations related to automatic closed school discharge.

Specifically, new regulations at 34 CFR 685.214(c) (Direct Loan Program), 34 CFR 682.402(d)(8)(ii) (FFEL Program), and 34 CFR 674.33(g)(ii) (Perkins Loan Program) provide for an automatic discharge of some or all of the Direct Loan, FFEL, or Perkins Loan program loans an eligible borrower (or, if applicable, the dependent child on whose behalf a parent took out a PLUS loan) obtained to attend a school that closed on or after November 1, 2013.

A borrower is eligible for an automatic closed school discharge if the borrower:

  • was enrolled when the school closed; or

  • withdrew not more than 120 days before the school closed; or

  • if approved by us, withdrew more than 120 days before the school closed; and

  • did not enroll at another Title IV-eligible school within three years of the date the borrower’s prior school closed.

In addition to borrower eligibility for an automatic closed school discharge, Section 437(c)(1) of the Higher Education Act of 1965, as amended, directs us to pursue any claim available to the borrower against the institution and its affiliates and principles.

On these bases, we are about to begin issuing Automatic Closed School Loan Discharge Liability Letters to affected schools. These letters will assess school liabilities equal to all loan funds discharged through the automatic closed school discharge process.  Schools may request reconsideration of this assessment by submitting, no later than 20 days following receipt of that letter, written evidence to show that this determination is unwarranted for one or more of the students who have received a loan discharge included in the liability. Detailed instructions about the submission of such evidence will be included in the letter schools receive.

We thank all schools and program participants for their continued support of the Title IV programs.

Last Modified: 11/24/2019