Closed School Discharge

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The HEA requires the Secretary of the Department of Education (“the Secretary”) to discharge a specified loan if the borrower was unable to complete the program due to the school’s closure. Parent PLUS loan borrowers are eligible for a closed-school discharge if the student on whose behalf the loan was taken out qualifies.

The closed-school discharge is particularly relevant for borrowers attending for-profit schools since these schools close more frequently. The Department reported in 2013 that, in the previous five years, 128 schools that participated in the federal student aid programs closed. The primary reason for closure was loss of accreditation. Of those 128 schools, 82 or 64% were for-profit schools. The trend continued in 2014 as large for-profit school chains such as Corinthian and Anthem Education began to fail and close numerous branches.

“School” is defined as a school’s main campus or any location or branch of the main campus. For example, if the student goes to branch “A,” there is no right to a discharge if only the main campus or branch “B” closed. On the other hand, if branch “A” closes, the student has a right to a discharge even if all other branches stay open. This is this case even if the student has the option of completing his or her program at another branch. The closed-school discharge applies to any school at which the student obtained a qualified loan, whether or not the school or branch was in fact an eligible institution under the program.

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