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When for-profit schools close: what happens to student loans?

ITT Tech is the most recent example of the many for-profit schools that are closing for good. These educational institutions often leave their students hanging with incomplete degrees and substantial student loan debt. If you or your child has been affected by a for-profit school closing, you may be wondering what to do about your school loans. Are you still on the hook for the debt?

Getting Closed-School Loans Discharged

It is possible to have your for-profit school loans discharged when the school closes, but there are a few rules.

  • You must be enrolled at the time the school closes or not have left the school more than 120 days prior to its closing.
  • If you are on a leave of absence that has been approved by the school at the time it closes, you are still technically enrolled.
  • You must not have completed a degree.
  • You must not have had your credits transferred and be enrolled in a similar program at another school. However, failing to complete the program at the new school makes you once again eligible for discharge of your closed-school student loans.

In order to begin the process of having your loans discharged, you should gather all your school and loan records. You will then need to complete an application for discharge. While you wait to hear if your loans have been discharged, you must continue to make your loan payments in a timely manner. Once your application is approved, you can stop making payments; you might even be eligible for a refund of payments made during the application process.

There are exceptions to the rules, particularly with regard to veterans, and there may be another way for you to get your loans discharged. If you can prove that coercive practices were used to entice you to take on debt in order to enroll in a for-profit school, you may be eligible for loan discharge. This is known as the borrower defense to repayment option and is a much more difficult process than a closed-school discharge. You should also be aware that filing for bankruptcy does not necessarily mean your educational loans are forgiven or removed from your credit history. To discuss more about school loans, how they may be discharged, and how they are handled in bankruptcy, talk to a lawyer today.

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