AUTOMATIC DISCHARGES COULD MEAN BIG LIABILITIES FOR CLOSED SCHOOLS

Federal Student Aid is getting ready to begin issuing Automatic Closed School Loan Discharge Liabilities to schools that have abruptly closed and displaced students. The rules for automatic closed school discharges were part of the 2016 Borrower Defense To Repayment regulations which ED implemented in December of 2018. Under those regulations FSA will determine which borrowers are eligible and grant discharge of their loans automatically. According to FSA, automatic discharges will be approved if a borrower was enrolled when a school closed or within 120 days of an institution closing, as long as the borrower did not enroll at another Title IV eligible school within three years.
These rules apply to all borrowers who obtained a federal title iv loan after November 1, 2013, including Direct Loan borrowers, PLUS Loan borrowers and Perkins Loan borrowers.