Closed School Discharge: Getting Federal Loans Cancelled After a College Shuts Down
By Muntasir • Published Aug 01, 2026 • Updated Aug 08, 2026 • US Student Loans
Closed school discharge cancels your federal student loans if your college shuts down while you are enrolled, or shortly before or after you withdraw. The withdrawal window is 180 days for loans taken out on or after July 1 2020, and 120 days for older loans.
🏫 Covers Direct Loans, FFEL, and Perkins Loans tied to the closed program
⏱️ 180-day window before closure for newer loans, 120 days for loans from before July 1 2020
📩 Some borrowers get discharged automatically, others must apply through their servicer
Completing your program through a teach-out usually disqualifies you
The discharge wipes the balance and refunds payments already made on it
When a closed school qualifies you
Closed school discharge cancels federal student loans when a college shuts down while you are enrolled and you cannot finish your program as a result, according to Federal Student Aid . It covers Direct Loans, FFEL Program loans, and Perkins Loans that paid for the program at that school.
You also qualify if you withdrew shortly before the closure. The withdrawal window is 180 days for loans first disbursed on or after July 1 2020, and 120 days for loans disbursed before that date. Being on an approved leave of absence when the school closed counts the same as being enrolled.
What disqualifies you
If you completed your program before the school closed, you are not eligible, since you already received the education the loan paid for. Completing the program through a teach-out agreement at another school, or transferring your credits and continuing your education elsewhere, generally rules out discharge for that loan as well.
You keep the option to apply for discharge on some loans while continuing your education with other loans, since eligibility is judged loan by loan and program by program.
How you get the discharge
Federal Student Aid identifies many closed school borrowers automatically using enrollment data from the closed institution and discharges their loans without an application, a process it calls automatic closed school discharge, per Federal Student Aid . You get a notice if this applies to you, with instructions on how to opt out if you would rather complete your program through a teach-out and keep your credits.
If you are not identified automatically, you can apply directly. MOHELA services closed school discharge claims for the Department of Education. Submit the discharge application with proof of your enrollment dates and the school's closure date. There is no fee, and no company can promise faster processing for payment.
What the discharge covers
Approval cancels the remaining loan balance tied to the closed program and removes the debt from your credit history as a federal loan in good standing rather than a default. Federal Student Aid also refunds payments you already made on the discharged loan, including payments collected through wage garnishment or tax refund offset.
Discharge does not restore Pell Grant or other federal aid eligibility you already used at the closed school, so check with a new school's financial aid office about your remaining lifetime aid limits before re-enrolling elsewhere.
If you are not sure your school qualifies
The Department of Education keeps a running list of closed schools and pending closures on its site. If your school announced a closure or lost accreditation, contact your loan servicer directly and ask whether you match the automatic discharge criteria or need to file an application.