Student Loan Discharge
Also called “The Closed School Discharge Program”
If a borrower dies, every Federal Student Loan they carry will be discharged. This debt is not considered part of their estate nor will assets from their estate be pursued by either the Department of Education or their loan servicer. If a parent that has taken out a PLUS loan for their child, it will be discharged if either the parent or the student dies. Again, neither the Department of Education nor the loan servicer will pursue the assets of the estate for the parent of the student.
If the student loan was a Federal Perkins Loan, a death certificate must be provided to the school attended by either a family member or a legal representative to begin the discharge process. If it was a Direct Loan or a Federal Family Education Loan, the death certificate must be given to the loan servicer to begin discharge.
Closed School Discharge
Direct Loans and Family Federal Education Loans can be discharged if your school closes and you meet these criteria:
- The school you are enrolled in closes and you cannot complete your program because of it. This also applies for ANY Federal Student Loan taken out to pay for attending that school. If you were on a leave of absence approved by the school, you are still considered to be enrolled
- If you withdraw from school, you still qualify if the school closes within 90 days after you have left.
Direct Loans or Family Federal Education Loans will not be discharged under these circumstances:
- The school closes MORE than 90 days after you withdraw.
- You are enrolled in a comparable degree program at another school. If you complete this program and have already had your loan discharged, you could be liable to pay back the discharged loan.
- You have completed the course program, but have not received a diploma or certificate of completion from the school before it closed.
If you believe you qualify for a closed school discharge program, contact your loan servicer to ask for a closed school discharge application. In most cases, you will need your academic and financial records to show that you were enrolled in a degree program with that school. If you did not receive a final transcript from the school before it closed, contact the state government licensing department. They will know if the school made arrangements for their records.
If you cannot obtain a final transcript, gather every document you can that shows you were enrolled in the school. Student Debt Relief can help you use those to secure a loan discharge.
This is not a simple process. Any student or parent applying for a bankruptcy discharge must prove to the court that repaying the student loan will cause undue financial hardship on you and your dependents. If you file for bankruptcy discharge under Chapter 7 or Chapter 13, this decision is made in an Adversary Proceeding in bankruptcy court. The judge will use a three-part test to base his determination. Your loan will not be discharged if you cannot meet all three criteria.
- If you have to repay the loan, you will not be able to maintain a minimal standard of living for yourself and your dependents.
- You can show evidence that this financial hardship will continue for an extended period of the lifetime of the loan repayment.
- You have made a good faith effort to repay the student loan before filing for bankruptcy. This is usually a repayment period of no less than five years.
If you do get your Federal Student Loan discharged in bankruptcy court, all collection attempts stop immediately and there will be no further payments required. If you have lost eligibility for further Federal Student Aid in the process, you will now regain it. This is important if you can eventually return to school or want to help your children attend college at some point in the future.