Your school closed mid-programme — what happens to the loans, the credits and the money already paid

Three federal routes can cancel a loan taken out for a school that failed: closed school discharge, which turns on the closure itself; borrower defense, which turns on what the school did; and false certification, which turns on whether the student should ever have been enrolled. The first is the one that matters in the fortnight after the doors shut.

Which version of the rules applies to you is now a matter of statute

This regime was rewritten in 2016, 2019 and 2022, and each rewrite was litigated. The 2022 package was enjoined nationwide by the Fifth Circuit in Career Colleges & Schools of Texas v. Department of Education in April 2024, and then Congress settled it. Sections 85001 and 85002 of Public Law 119-21, enacted 4 July 2025, provide that for loans first originating before 1 July 2035 the 2022 amendments to 34 CFR 674.33(g), 682.402(d) and 685.214 "shall not be in effect", and that those sections operate "as if the amendments made by such final regulations had not been made". Section 85001 does the same for borrower defense, reviving the 1 July 2020 rules.

The look-back window is keyed to your disbursement date, not the closing date

To qualify, the student must have been enrolled when the school closed or have withdrawn within the look-back window before it. There are two windows, and which applies is decided by when the loan was first disbursed — not by when the school closed, which is the assumption almost everyone makes. For a Direct Loan first disbursed before 1 July 2020 it is 120 days; on or after, 180. The FFEL rule at 34 CFR 682.402(d)(1)(i) states 120 days flat, with no alternative. The closure date is itself a determination by the Secretary — the date instruction ceased in all programmes, not the date on the notice — and a branch or additional location counts as "the school" in its own right.

The teach-out is a decision, and nobody tells you it is one

This is the disqualifier that catches most people. For loans first disbursed before 1 July 2020 the borrower must state that they did not complete the programme through a teach-out at another school or by transferring academic credits or hours earned at the closed school to another school. For later loans the bar is higher: they must also certify that they have not accepted the opportunity to complete the programme or a comparable one, and are not continuing in it, through an institutional teach-out plan or an approved teach-out agreement. Accepting is enough. You do not have to finish.

The advice is narrow: before signing anything the receiving institution puts in front of you, get in writing how many credits it will actually accept. A teach-out that takes half of them has cost you the discharge and bought little. The enrolment agreement matters too — a false promise about credit transferability is itself evidence for the second route below.

What a discharge actually returns

More than most people expect. Under 34 CFR 685.214(b) the discharge relieves any past or present obligation on the loan together with accrued charges and collection costs; it qualifies the borrower for reimbursement of amounts paid voluntarily or through enforced collection, which reaches wage garnishment and offset tax refunds; a defaulted borrower stops being in default and is eligible for Title IV aid again; and the Secretary must report the discharge to every consumer reporting agency previously told about the loan, deleting the adverse credit history.

A Parent PLUS loan is covered. The regulation is written around "the borrower (or the student on whose behalf a parent borrowed)", so the parent qualifies on the student's enrolment and withdrawal facts, and the parent applies. In exchange, the borrower is deemed to assign to the Secretary any right to a loan refund, up to the amount discharged, against the school, its principals, affiliates and sureties.

Some discharges arrive without an application. The Secretary may grant one on information already held, and must do so for schools that closed on or after 1 November 2013 and before 1 July 2020 where the borrower did not re-enrol at any Title IV institution within three years of the closure date. For closures since July 2020 there is no such duty: you apply. Check first whether the closure date is already recorded — the Department publishes a weekly closed school file.

Borrower defense is broader ground and a much harder standard

Closed school discharge asks nothing about fault. Borrower defense asks about nothing else, and is available whether or not the school ever closed. Which standard applies again turns on the disbursement date: the pre-2017 rule for the oldest loans, the 2016 rule at 34 CFR 685.222 for loans first disbursed between 1 July 2017 and 30 June 2020, and the 2019 rule at 34 CFR 685.206(e) for anything later — the version Congress revived.

The 2019 standard is demanding. The borrower must establish by a preponderance of the evidence a misrepresentation of material fact, made knowing it was false or deceptive or with reckless disregard for the truth, relating directly and clearly to enrolment or the provision of educational services, reasonably relied on in deciding to borrow — plus financial harm caused by it. Financial harm excludes non-monetary loss and cannot be predominantly attributable to labour market conditions. Breach of contract, teaching quality and academic disputes are excluded outright, and relief may be partial. And the application must be filed within three years of the date the student is no longer enrolled.

False certification, at 34 CFR 685.215, is the third and narrowest route. It reaches a school that enrolled a student with no high school diploma who did not meet the ability-to-benefit alternatives, falsified a diploma, signed the borrower's name without authority, or enrolled someone whose age, criminal record or physical or mental condition disqualified them from state licensure in the very occupation trained for.

Where your own cash comes back from, if it does

A federal discharge returns loan money. It does nothing about the deposit, the term paid by card, or tuition an employer or a relative paid directly. State tuition recovery funds are the route built for that gap and the most overlooked thing on this page. California's is the clearest model: Education Code § 94923 has the Student Tuition Recovery Fund relieve economic loss suffered by a student who, at the time of enrolment, was a California resident or enrolled in a California residency programme, prepaid tuition and suffered loss. Residency, prepayment, loss — some version of those three conditions gates every such fund, and not every state runs one. Failing that, a claim against the school's surety bond or receivership estate, both capped across the whole student body and both paying a fraction. The closed school application asks what you have already recovered from a bond or a recovery programme, so the routes are coordinated rather than stacked.

Getting records out of an institution that no longer exists

Transcripts do not vanish with the school. State law generally requires an orderly wind-down — California Education Code § 94926 makes an institution notify its regulator in writing at least 30 days before closing, with a closure plan covering teach-outs and the disposition of records. The records end up with a transfer partner that agreed to hold them, a commercial transcript service, or the state higher education or licensing agency, which is the usual answer for a for-profit that simply stopped.

The Department maintains a state education agency contact search for exactly this, and that agency is where to start rather than the school's dead phone number. Where a receiver or former parent will not respond, a written demand citing the state records statute moves things more often than a call; a general legal notice is the right shape. A refusal grounded in an unpaid balance is a separate problem, covered in transcript holds.

None of this reaches a private loan or an unaccredited bootcamp

All three routes are creatures of the Higher Education Act and reach federal loans only. A private student loan, a school-arranged instalment plan, an income share agreement or a bootcamp that was never Title IV eligible sits outside them entirely, however badly the provider behaved. What is left is contract and state consumer-protection law: the cancellation terms in what you signed, the state's unfair and deceptive practices statute, the regulator that licensed the provider if one did, and — where the school arranged the credit — the FTC Holder Rule notice, which preserves against the holder of the paper the claims you would have had against the school, capped at what you paid. The mechanics are in income share agreements and bootcamp financing; a demand letter is the usual first move.

Be realistic about timing. The Department is running a decade-long freeze on rules it wrote itself, defending the revived 2019 regulations against a fresh challenge from the sector, and clearing a settlement backlog it asked for an eighteen-month extension on and did not get. Closed school discharge is the cleanest of the three routes because it asks the fewest questions: a closure date, an enrolment date, and a statement that you did not finish somewhere else. That last statement is the whole case, and it is settled by what you sign in the fortnight after the doors close.