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MEMORANDUM

Date: October 21, 2021

To: U.S. Department of Education

From: Persis Yu and Joshua Rovenger, Negotiators for Legal Assistance Organizations that Represent 

Students and/or Borrowers

Re: Closed School Discharge Regulatory Proposals

We appreciated the robust discussion on Closed School Discharge and, as we mentioned, we support 

many of the Department’s proposed changes as it relates to the regulation. We also look forward to 

additional discussion about the importance of granting automatic discharges for all borrowers who

did not complete their program because their school closed on or after January 1, 1986 and prior to 

November 1, 2013, and about the need to eliminate the extra-statutory requirement that a student 

cannot get a closed school discharge if she later re-enrolls and transfers most credits to a comparable 

program.

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As we mentioned during the session, we also have specific proposals that we ask the Department to 

consider:

(1) Automatic Discharge: The Department should make the language in sub-section (h) on 

automatic discharges mandatory.

(2) Ensuring Relief from Predatory Credential Stacking: The Department should clarify that a 

student is eligible for a closed school discharge on all loans associated with a school when that 

school conditions admission into one program on completion of another (i.e. when a borrower 

is guaranteed enrollment into a bachelor’s degree program after they complete the credits for 

an associate degree program). This issue is not addressed by the Department’s current subtopics. 

(3) Exceptional Circumstances: The Department should include additional examples of the 

“exceptional circumstances” that warrant extending the closed school discharge window. The

Department should also make the extended date presumptively effective unless the Secretary 

rebuts the presumption that such circumstances warrant an extension of the window. 

1 As discussed, the current proposal will pose a barrier to the very borrowers who have been suffering

the longest. This is particularly inequitable since the Higher Education Act does not impose the 

requirement, and since most students are unable to transfer most of their credits after their institution 

closes. Indeed, other programs for students who attended a closed school are not so limited, and 

expressly apply to those “who transfer to another institution.” See, e.g., Md. Code. Educ. Art. 11-

203(e)(2)(ii) (Maryland’s program to reimburse students who attended a closed school for non-Title 

IV tuition and fees). The Department could, instead, universally apply the standard it proposes for 

schools closed on or after July 1, 2019 (barring a student from relief only if they complete an accreditor 

approved teach-out.)
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Proposal 1: The Department should change the discretionary language in the automatic 

discharge section of its proposed regulatory language.

Background: We are pleased to see the return of an automatic discharge provision in this regulation. 

As proposed, sub-section (h) of the proposed regulation states that “If the Secretary determines based 

on information in the Secretary’s possession that the borrower qualified for the discharge of a loan 

under this section, the Secretary may discharge the loan without an application from the borrower.” 

We see no reason for this to be discretionary. Instead, if a borrower is eligible for an automatic 

discharge, the Secretary should be required to provide one. 

Proposal: The Department should replace “may” with “shall” in proposed sub-section (h) of the 

regulation. The Department should retain its discretion to provide a discharge in other circumstances. 

Proposal 2: The Department should clarify that a student is eligible for a Closed School 

Discharge on all loans associated with a school when that school conditions admission into 

one program on completion of another.

Background: Some schools, particularly for-profit institutions, manipulate a student into enrolling in

multiple credential programs. Often, they will require the student to enroll in a diploma or associate 

degree program before they can enter a bachelor’s degree program. This is true even if the student 

always and expressly intended to pursue a bachelor’s program. 

ITT Tech is a notorious example of predatory degree stacking. ITT admissions representatives would

tell students it was enrolling them in a bachelor’s degree program but would require students to 

complete an associate degree program before allowing them to begin the bachelor’s degree program. 

The associate degree credits would count towards the credits needed to complete the bachelors. When 

ITT Tech closed, the current closed school discharge standard left students repaying a substantial 

portion of the debt they borrowed to attend ITT. Students in stacked programs appeared to have 

completed an associate degree, rendering the associated debt ineligible for a closed school discharge. 

There is no reason for the Department to accept the school’s artificial fissuring of the two programs. 

In truth, the student went to the school for the bachelor’s degree and was working towards that degree

the entire time. They should be permitted to discharge the entirety of the debt borrowed in pursuit of 

the stacked degree. 

Proposal: The Department should explicitly clarify that a student is eligible for a discharge on all loans 

associated with a school in circumstances like these, that is: (1) where a school conditions admission

into one program on completion of another, (2) the school closes while the student was in the second 

program, and (3) the student, within a reasonable period of time, continued from the first program 

into the second. 

To accomplish this change, we propose that the Department add the following to 34 C.F.R. § 

685.214(a)(2):

“Program of Study” includes completed credential levels at the same institution that share the first four 

digits of the CIP code as the credential level that the borrower did not complete if the borrower was 

enrolled in the non-completed program within a reasonable time (18 months) after the completed 

program. Irrespective of the CIP code, the term “Program of Study” also includes a completed credential 
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level at the same institution as a non-completed program if the credential level that the borrower did 

not complete was designed or represented to be a continuation of the program that the borrower 

completed. 

Proposal 3: The Department should include additional examples of the “exceptional 

circumstances” that warrant extending the closed school discharge window and should 

require the Secretary to affirmatively rebut a presumption that such circumstances warrant 

an extension of the window.

Background: We support the Department’s decision to include examples of “exceptional 

circumstances” that justify expanding the withdrawal eligibility window. We also applaud the 

Department’s recent use of that authority as it relates to ITT Tech. 

The “exceptional circumstances” provision recognizes that in anticipation of a school closing, an 

institution often fails to maintain necessary equipment and facilities, stops paying instructor wages, 

fails to replace instructors who have departed, and discontinues programs before students have 

completed them. As the GAO plainly stated: “research has indicated that a school’s financial struggles 

can have negative effects on its operations.”2 Unfortunately, in practice, the Department has rarely 

found such “exceptional circumstances,” and has only extended the look-back window in extreme 

conditions (such as after the implosion of Corinthian Colleges and ITT Tech).

The Department’s current, non-exhaustive list is a good start. There are, however, other circumstances 

that signal a potential closure and yield the same “negative effects” on operations. Most notably, the 

Department placement of a school on heightened cash-monitoring status is often the precursor to 

significant cuts. This was the case for schools owned by Corinthian, those owned by Education 

Corporation of America (HCM status in March 2015 and closed in December 2018), and ITT Tech 

(HCM status in August 2014 and closed in September 2016). 

Another event that the Department should specifically recognize as an “exceptional circumstance” is 

when there is a judgment against a school for violations of state or federal law that adversely impact

the school’s finances. By way of example, in November 2015, a federal court entered a Consent 

Judgment against Education Management Corporation (EDMC) – owner of the Art Institutes, Argosy 

University, South University, and Brown-Mackie Colleges. The Court ordered EDMC to pay $95.5 

million to the Department and several states for an illegal scheme to pay incentive compensation to 

recruiters based on the number of students they enrolled. This judgment was the beginning of the end 

for these schools, leading to the closure of 22 Brown-Mackie campuses in June 2016, and the sale and 

subsequent closure of many of the others in 2018 and 2019.

Proposal: The Department should include the following examples of exceptional circumstances: (1) 

the placement of a school on heightened cash monitoring status, and (2) a judgment, whether 

stipulated or contested, against a school for violations of state or federal law that required a payment 

that adversely impacted the school’s finances. The Department can accomplish this change by adding 

in these examples as numbers (8) and (9) to its proposal at § 685.214(i). 

2 U.S. Gov’t Accountability Off., GAO-17-555, Higher Education: Education Should Address Oversight and 

Communication Gaps in its Monitoring of the Financial Conditions at Schools 28 (2017). 
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Furthermore, in order to ensure that the Department appropriately evaluates whether any event 

constitutes such an exceptional circumstance, it should: (1) presume that such an event warrants an 

expansion of the eligibility window, and (2) require the Secretary to affirmatively rebut that 

presumption. To accomplish these changes, we propose that the Department modify the current 

versions of 34 C.F.R. § 685.214(c)(1)(i)(B) and § 685.214(c)(2)(i)(B) to read:

The Secretary shall extend the 180-day period if an exceptional circumstance, as described 

in paragraph (i) of this section, occurred. The extension for the exceptional circumstances takes effect 

unless the Secretary makes a written finding, upon clear and convincing evidence, tbat the event does 

not justify an extension of the 180-day period.