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.
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 diploma, 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.
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.
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 Educational
loans holder, regardless of what type of loan it is, can help you apply for
any relief that may be available.
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