UNITED STATES DEPARTMENT OF EDUCATION

 OFFICE OF POSTSECONDARY EDUCATION

Issue Paper #2: Closed School Discharge

Session 1: October 4-8, 2021

Issue: Improving Borrower Access to Closed School Discharges

Statutory cites: §437(c)(1) of the Higher Education Act of 1965, as amended

Regulatory cites: 34 CFR 685.214

Summary of issues: Under Section 437(c)(1) of Higher Education Act or 1965, as amended, the 

Secretary of Education is authorized to discharge the loans of certain borrowers when a school closes. 

To qualify for a closed school discharge, a borrower must have been enrolled at the institution on the 

date of its closure or have withdrawn no more than 120 days prior to its closure (180 days for loans 

made on or after July 1, 2020). They must not have graduated from the school or transferred their 

credits to complete the same or a comparable program at another school.

The Secretary may grant closed school discharges to borrowers who left the school more than 120 days 

or 180 days before its closure, as applicable, if the Secretary determines that exceptional circumstances 

justify such an extension. A non-exhaustive list of exceptional circumstances is provided in the 

regulations.

The Department’s regulations also provide for automatic closed school discharges for borrowers who 

attended an institution that closed between November 1, 2013, and July 1, 2020, if the borrower did not 

subsequently re-enroll in any Title IV-eligible institution within three years of the date the school closed.

The Department is concerned that several aspects of the closed school discharge process have limited 

the ability of borrowers to receive closed school discharges:

• Final regulations published in the Federal Register on November 1, 2016, provided for automatic 

closed school discharges to borrowers who were eligible for a closed school discharge but did 

not apply for one, and who did not enroll elsewhere within three years of the institution’s 

closure. Final regulations published on Sept. 23, 2019, eliminated this provision.

• For borrowers who withdrew from a school prior to the school closing, the discharge windows 

are not consistent across years. The Sept. 23, 2019, closed school discharge regulations set the 

closed school discharge window at 180 days for any loans made on or after July 1, 2020. Prior to 

that date, the window was 120 days. 

• Under §685.214(c)(1)(i)(B), the Secretary may extend the closed school discharge window under 

“exceptional circumstances.” The non-exhaustive list of exceptional circumstances provided in 

the regulations does not include many events that may occur on the path to closure and could 

reasonably be associated with closure. In addition, the Sept. 23, 2019, regulations removed 

some items that were included in the prior regulations, such as "a finding by a State or Federal 

government agency that the school violated State or Federal law.”

• The term “comparable program” is not defined, nor are the standards for how many credits

from a closed school would need to have been accepted by a transfer school to disqualify a 
Closed School Discharge 2

borrower for a closed school discharge. For a borrower who attended a closed school and then 

enrolled in another school, this can create uncertainty as to whether a borrower qualifies for a 

closed school discharge and can discourage borrowers from applying for the discharge.

Solutions: The Department believes closed school discharges are an important benefit to help 

borrowers get a fresh start when their institution closes. To achieve the goals of this benefit we propose 

the following initial solutions for discussion with the negotiating committee to make closed discharges 

more automatic and the terms of the program easier for borrowers to understand:

Reinstate automatic closed school discharges. Reinstate the automatic closed school discharges for 

borrowers who do not enroll elsewhere when an institution closes but reduce the period before 

automatic discharges occur from three years to one year following a closure.

This one-year period was the consensus of the non-federal negotiators during negotiations for the 

regulations published on November 1, 2016. The one-year wait out period for an automatic closed 

school discharge ensures that borrowers who immediately enroll elsewhere do not receive an automatic 

discharge but reduces the likelihood that an eligible borrower would go into default before receiving the 

automatic discharge.

Establish a consistent window of eligibility for students who withdrew from a school before it closed. 

Standardize the window of eligibility, regardless of the disbursement date of the loan, to 180 days. 

Define “comparable program” for purposes of a closed school discharge. Due to data limitations that 

have changed over time, the Department proposes addressing this issue based upon when the school 

closed.

• Institutions that closed prior to July 1, 2014: Due to data limitations, borrowers who enrolled at 

another school would not be eligible for an automatic discharge. These borrowers would have 

to attest on an application that they did not enroll in a comparable program, which we would

define as a program at the same credential level and in the same field of study and which 

accepted most of the credits transferred from the closed school. (Note: Before 2014 the 

Department does not have data on the program a borrower attended so we cannot use such 

data to make administrative determinations that a program was comparable.)

• Institutions that closed between July 1, 2014 and June 30, 2019: Borrowers who enrolled at 

another school would receive an automatic discharge if they did not enroll in a program at the 

same level and with the same four-digit Classification of Instructional Program (CIP) code as the

program that they were enrolled in at the closed school. A borrower who attended a program 

with the same CIP code and level could still receive a discharge by submitting an application and 

stating on the application that they did not transfer most of their credits.

• Institutions that closed after July 1, 2019: Borrowers who enrolled at another school would 

receive a discharge so long as they did not accept and complete an accreditor approved teachout program. This would define a “comparable program” to only include programs that are 

designed to be continuations of the program that the borrower was enrolled in at the closed 

school. The completion requirement also ensures that borrowers who try a teach out are not 

penalized if the borrower does not complete the teach out. The clock on the automatic 
Closed School Discharge 3

discharge window would be paused while the borrower is in the teach-out program and would 

restart after they leave the teach out if they do not finish. 

Expand the list of examples of exceptional circumstances. We propose adding additional illustrative 

examples to the list of exceptional circumstances, while maintaining that the list is non-exhaustive. 

None of these would be binding but they would send clearer signals about how the Secretary may use 

this authority going forward. The additional illustrative examples may include:

• A finding by a State or Federal government agency that the school violated State or Federal 

law related to education or services to students: To restore an earlier provision but stated in a 

slightly clearer manner.

• Accreditor actions besides loss of accreditation: The institution is or was placed on probation or 

issued a show-cause order or placed on an accreditation status that poses an equivalent or 

greater risk to its accreditation, by its accrediting agency for failing to meet one or more of the 

agency's standards.

Proposed Regulations:

To assist the Committee in discussing these issues, the Department is providing draft revisions to the

closed school discharge regulatory language for the Direct Loan Program, incorporating the 

Department’s proposals.

§685.214 Closed school discharge.

(a) General. (1) The Secretary discharges the borrower's (and any endorser's) obligation to repay a 

Direct Loan in accordance with the provisions of this section if the borrower (or the student on whose 

behalf a parent borrowed) did not complete the program of study for which the loan was made because 

the school at which the borrower (or student) was enrolled closed, as described in paragraph (c) of this 

section.

(2) For purposes of this section—

(i) A school's closure date is the date that the school ceases to provide educational instruction in all 

programs, as determined by the Secretary; and

(ii) “School” means a school's main campus or any location or branch of the main campus, 

regardless of whether the school or its location or branch is considered eligible: and

(iii) “Comparable program” means--—
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(A) For schools that closed before [MONTH/DAYJuly 1, /2014] a program at the same credential 

level and in the same field of study that the borrower was enrolled in at the closed school and which 

accepted most of the credits transferred from the closed school.

(B) For schools that closed on or after [MONTH/DAY/July 1, 2014] and before [MONTH/DAY/June 

30, 2019] a program at the same level and with the same Classification of Instructional Program (CIP) 

code as the program that the borrower was enrolled in at the closed school.

(C) For schools that closed on or after [MONTH/DAY/July 1, 2019] a program designed to be a 

continuation of the program that the borrower was enrolled in at the closed school.

(b) Relief pursuant to discharge. (1) Discharge under this section relieves the borrower of any past 

or present obligation to repay the loan and any accrued charges or collection costs with respect to the 

loan.

(2) The discharge of a loan under this section qualifies the borrower for reimbursement of amounts 

paid voluntarily or through enforced collection on the loan.

(3) The Secretary does not regard a borrower who has defaulted on a loan discharged under this 

section as in default on the loan after discharge, and such a borrower is eligible to receive assistance 

under programs authorized by title IV of the Act.

(4) The Secretary reports the discharge of a loan under this section to all consumer reporting 

agencies to which the Secretary previously reported the status of the loan, so as to delete all adverse 

credit history assigned to the loan.

(c) Borrower qualification for discharge. (1) For loans first disbursed before July 1, 2020, in order to 

qualify for discharge of a loan under this section, a borrower must submit to the Secretary a written 

request and sworn statement,a completed application and the factual assertions in the

statementapplication must be true The statement need not be notarized but and must be made by the 

borrower under penalty of perjury. In the statement,The application explains the procedures and 

eligibility criteria for obtaining a discharge and requires the borrower to must—

(i) State that the borrower (or the student on whose behalf a parent borrowed)—

(A) Received the proceeds of a loan, in whole or in part, on or after January 1, 1986 to attend a 

school;

(B) Did not complete the program of study at that school because the school closed while the 

student was enrolled, or the student withdrew from the school not more than 120180 calendar days 

before the school closed. The Secretary may extend the 120180-day period if the Secretary determines 

that exceptional circumstances, as described in paragraph (i) of this section, related to a school's closing

justify an extension. Exceptional circumstances for this purpose may include, but are not limited to: the 

school's loss of accreditation; the school's discontinuation of the majority of its academic programs; 

action by the State to revoke the school's license to operate or award academic credentials in the State; 

or a finding by a State or Federal government agency that the school violated State or Federal law; and; 

and 
Closed School Discharge 5

(C) Did not complete the program of study or a comparable program through either an 

institutional teach-out plan performed by the school or a teach-out agreement at another school, 

approved by the school’s accrediting agency and, if applicable, the school’s State authorizing agency.an 

approved teach-out at another school or by transferring academic credits or hours earned at the closed 

school to another school;

(ii) State whether the borrower (or student) has made a claim with respect to the school's closing 

with any third party, such as the holder of a performance bond or a tuition recovery program, and, if so, 

the amount of any payment received by the borrower (or student) or credited to the borrower's loan 

obligation; and

(iii) State that the borrower (or student)—

(A) Agrees to provide to the Secretary upon request other documentation reasonably available to 

the borrower that demonstrates that the borrower meets the qualifications for discharge under this 

section; and

(B) Agrees to cooperate with the Secretary in enforcement actions in accordance with paragraph 

(d) of this section and to transfer any right to recovery against a third party to the Secretary in 

accordance with paragraph (e) of this section.

(2) For loans first disbursed on or after July 1, 2020, in order to qualify for discharge of a loan under 

this section, a borrower must submit to the Secretary a completed application, and the factual 

assertions in the application must be true and made by the borrower under penalty of perjury. The 

application explains the procedures and eligibility criteria for obtaining a discharge and requires the 

borrower to—

(i) Certify that the borrower (or the student on whose behalf a parent borrowed)—

(A) Received the proceeds of a loan, in whole or in part, on or after July 1, 2020 to attend a school;

(B) Did not complete the program of study at that school because the school closed on the date 

that the student was enrolled, or the student withdrew from the school not more than 180 calendar 

days before the date that the school closed. The Secretary may extend the 180-day period if the 

Secretary determines that exceptional circumstances, as described in paragraph (i) of this section,

related to a school's closing justify an extension;. Exceptional circumstances for this purpose may 

include, but are not limited to: The revocation or withdrawal by an accrediting agency of the school's 

institutional accreditation; revocation or withdrawal by the State authorization or licensing authority to 

operate or to award academic credentials in the State; the termination by the Department of the 

school's participation in a title IV, HEA program; the teach-out of the student's educational program 

exceeds the 180-day look-back period for a closed school loan discharge; or the school responsible for 

the teach-out of the student's educational program fails to perform the material terms of the teach-out 

plan or agreement, such that the student does not have a reasonable opportunity to complete his or her 

program of study or a comparable program; and
Closed School Discharge 6

(C) Did not complete the program of study or a comparable program through a teach-out at 

another school or by transferring academic credits or hours earned at the closed school to another 

school;

(ii) Certify that the borrower (or the student on whose behalf the parent borrowed) has not 

accepted the opportunity to complete, or is not continuing in, the program of study or a comparable 

program through either an institutional teach-out plan performed by the school or a teach-out 

agreement at another school, approved by the school's accrediting agency and, if applicable, the 

school's State authorizing agency.

(3) If the Secretary determines, based on information in the Secretary's possession, that the borrower 

qualifies for the discharge of a loan under this section, the Secretary—

(i)Mmay discharge the loan without an application from the borrower; and

(ii) With respect to schools that closed on or after November 1, 2013, and before July 1, 2020, will 

discharge the loan without an application from the borrower if the borrower did not subsequently reenroll in any title IV-eligible institution within a period of three one years from the date the school 

closed.

(d) Cooperation by borrower in enforcement actions. (1) In order to obtain a discharge under this 

section, a borrower must cooperate with the Secretary in any judicial or administrative proceeding 

brought by the Secretary to recover amounts discharged or to take other enforcement action with 

respect to the conduct on which the discharge was based. At the request of the Secretary and upon the 

Secretary's tendering to the borrower the fees and costs that are customarily provided in litigation to 

reimburse witnesses, the borrower must—

(i) Provide testimony regarding any representation made by the borrower to support a request for 

discharge;

(ii) Produce any documents reasonably available to the borrower with respect to those 

representations; and

(iii) If required by the Secretary, provide a sworn statement regarding those documents and 

representations.

(2) The Secretary denies the request for a discharge or revokes the discharge of a borrower who—

(i) Fails to provide the testimony, documents, or a sworn statement required under paragraph 

(d)(1) of this section; or

(ii) Provides testimony, documents, or a sworn statement that does not support the material 

representations made by the borrower to obtain the discharge.

(e) Transfer to the Secretary of borrower's right of recovery against third parties. (1) Upon 

discharge under this section, the borrower is deemed to have assigned to and relinquished in favor of 

the Secretary any right to a loan refund (up to the amount discharged) that the borrower (or student) 
Closed School Discharge 7

may have by contract or applicable law with respect to the loan or the enrollment agreement for the 

program for which the loan was received, against the school, its principals, its affiliates and their 

successors, its sureties, and any private fund, including the portion of a public fund that represents 

funds received from a private party.

(2) The provisions of this section apply notwithstanding any provision of State law that would 

otherwise restrict transfer of those rights by the borrower (or student), limit or prevent a transferee 

from exercising those rights, or establish procedures or a scheme of distribution that would prejudice 

the Secretary's ability to recover on those rights.

(3) Nothing in this section limits or forecloses the borrower's (or student's) right to pursue legal 

and equitable relief regarding disputes arising from matters unrelated to the discharged Direct Loan.

(f) Discharge procedures. The discharge procedures in this paragraph (f) apply to loans first 

disbursed before July 1, 2020.

(1) After confirming the date of a school's closure, the Secretary identifies any Direct Loan 

borrower (or student on whose behalf a parent borrowed) who appears to have been enrolled at the 

school on the school closure date or to have withdrawn not more than 120 180 days prior to the closure 

date.

(2) If the borrower's current address is known, the Secretary mails the borrower a discharge 

application and an explanation of the qualifications and procedures for obtaining a discharge. The 

Secretary also promptly suspends any efforts to collect from the borrower on any affected loan. The 

Secretary may continue to receive borrower payments.

(3) If the borrower's current address is unknown, the Secretary attempts to locate the borrower 

and determines the borrower's potential eligibility for a discharge under this section by consulting with 

representatives of the closed school, the school's licensing agency, the school's accrediting agency, and 

other appropriate parties. If the Secretary learns the new address of a borrower, the Secretary mails to 

the borrower a discharge application and explanation and suspends collection, as described in 

paragraph (f)(2) of this section.

(4) If a borrower fails to submit the application described in paragraph (c) of this section within 60 

days of the Secretary's providing the discharge application, the Secretary resumes collection and grants 

forbearance of principal and interest for the period in which collection activity was suspended. The 

Secretary may capitalize any interest accrued and not paid during that period.

(5) Upon resuming collection on any affected loan, the Secretary provides the borrower another 

discharge application and an explanation of the requirements and procedures for obtaining a discharge.

(6) If the Secretary determines that a borrower who requests a discharge meets the qualifications 

for a discharge, the Secretary notifies the borrower in writing of that determination.

(7) If the Secretary determines that a borrower who requests a discharge does not meet the 

qualifications for a discharge, the Secretary notifies that borrower in writing of that determination and 

the reasons for the determination.
Closed School Discharge 8

(g) Discharge procedures. The discharge procedures in this paragraph (g) apply to loans first 

disbursed on or after July 1, 2020.

(1) After confirming the date of a school's closure, the Secretary identifies any Direct Loan 

borrower (or student on whose behalf a parent borrowed) who appears to have been enrolled at the 

school on the school closure date or to have withdrawn not more than 180 days prior to the closure 

date.

(2) If the borrower's current address is known, the Secretary mails the borrower a discharge 

application and an explanation of the qualifications and procedures for obtaining a discharge. The 

Secretary also promptly suspends any efforts to collect from the borrower on any affected loan. The 

Secretary may continue to receive borrower payments.

(3) If the borrower's current address is unknown, the Secretary attempts to locate the borrower 

and determines the borrower's potential eligibility for a discharge under this section by consulting with 

representatives of the closed school, the school's licensing agency, the school's accrediting agency, and 

other appropriate parties. If the Secretary learns the new address of a borrower, the Secretary mails to 

the borrower a discharge application and explanation and suspends collection, as described in 

paragraph (g)(2) of this section.

(4) If a borrower fails to submit the application described in paragraph (c) of this section within 60 

days of the Secretary's providing the discharge application, the Secretary resumes collection and grants 

forbearance of principal and interest for the period in which collection activity was suspended. The 

Secretary may capitalize any interest accrued and not paid during that period.

(5) If the Secretary determines that a borrower who requests a discharge meets the qualifications 

for a discharge, the Secretary notifies the borrower in writing of that determination.

(6) If the Secretary determines that a borrower who requests a discharge does not meet the 

qualifications for a discharge, the Secretary notifies that borrower in writing of that determination and 

the reasons for the determination, and resumes collection.

(h) Discharge without an application. (1) If the Secretary determines based on information in the 

Secretary’s possession that the borrower qualifies for the discharge of a loan under this section, the 

Secretary may discharge the loan without an application from the borrower, if the borrower did not 

subsequently re-enroll in any title IV- eligible institution within a period of one year from the date the 

school closed.

(2) Notwithstanding paragraph (h)(1) of this section, a borrower who re-enrolled at another school 

does not qualify for a discharge without an application if the school the borrower was enrolled in—

(i) Closed before July 1, 2014];

(ii) Closed on or after July 1, 2014 and before June 30,2019 and the borrower re-enrolled in a 

program at the same level and with the same four-digit CIP code as the program that the borrower was

enrolled in at the closed school; or
Closed School Discharge 9

(iii) Closed on or after July 1, 2019 and the borrower. accepted and completed an approved teach 

out program.

(i) Exceptional circumstances. For purposes of this section, exceptional circumstances include, but 

are not limited to—

(1) The revocation or withdrawal by an accrediting agency of the school's institutional 

accreditation;

(2) The revocation or withdrawal by the State authorization or licensing authority to operate or to 

award academic credentials in the State;

(3) The termination by the Department of the school's participation in a title IV, HEA program;

(4) A finding by a State or Federal government agency that the school violated State or Federal law

related to education or services to students;

(5) The teach-out of the student's educational program exceeds the 180-day look-back period for a 

closed school discharge; 

(6) The school responsible for the teach-out of the student's educational program fails to perform 

the material terms of the teach-out plan or agreement, such that the student does not have a 

reasonable opportunity to complete his or her program of study or a comparable program;

(7) the institution is or was placed on probation or issued a show-cause order, or placed on an 

accreditation status that poses an equivalent or greater risk to its accreditation, by its accrediting agency 

for failing to meet one or more of the agency's standards;

Last updated 9/29/2021