If your school closed or misled you, do you still have to repay your federal student loans?

Summary

Possibly not. If your school closed while you were enrolled, on an approved leave of absence, or within 180 days after you withdrew, and you never finished the program, a closed school discharge cancels the Direct, FFEL, or Perkins loans you took out to attend and refunds what you paid. If the school lied to you about something that drove your decision to enroll, borrower defense can cancel your Direct Loans, but only after the Education Department weighs your evidence and any response from the school and finds your account more likely than not to be true.

Two programs, two different tests

	Closed school discharge	Borrower defense
What went wrong	The school closed before you could finish	The school misled you or broke certain rules
Federal loans covered	Direct, FFEL, and Perkins	Direct Loans; parent PLUS borrowers file their own claim
What decides it	Dates: closure, enrollment, withdrawal	Your evidence and the school's, weighed against each other
Automatic?	Yes, one year after closure, for schools that closed on or after July 1, 2023	No, you have to apply
Private loans	Not covered	Not covered

When the school closes

The 180-day window runs back from the closure date. Withdraw earlier than that and you are normally out, though the department can stretch the window for exceptional circumstances. The regulation's examples include a school losing its accreditation or state authorization, being cut off from federal student aid, or running a teach-out that lasts longer than 180 days.

You do not qualify if you graduated from the closed school, or if you finished or are finishing the program at another branch of the same school or through a teach-out at another school approved by the accreditor. Two situations that sound disqualifying are not. A school that hands out a lesser certificate on its way out does not cost you the discharge if you never completed your actual program, and moving your credits to an unrelated school and graduating there does not either.

For a school that closed before July 1, 2023, there is no automatic discharge, and you send a paper application to your servicer. For later closures you can wait the year or apply as soon as the department confirms the official closure date. Keep making payments while the application is reviewed. An approved discharge cancels the debt, refunds payments you made or that were collected from you, and deletes the loan and its payment history, late payments included, from your credit report.

When the school misled you

Borrowers who have won borrower defense claims in the past were typically told something false that mattered to them: a guaranteed job after graduation, a certain salary, credits that would transfer. A closure by itself is not a borrower defense claim. Loans taken out in your name without your permission, or enrollment when you did not meet the admission requirements, fall under a separate false certification discharge.

StudentAid.gov asks for detail on who said what, when and where it happened, how it reached you, how you found out it was false, why it mattered when you enrolled, and how it harmed you. The evidence it lists includes:

emails and other messages with the school
course catalogs and student handbooks
ads on the web, social media, email, print, or TV
enrollment agreements, transcripts, and diplomas that show your dates and program

You sign the application under penalty of perjury. If the school is still open, it gets a copy and can answer with its own evidence. The department approves the claim only if it finds your version more likely than not to be true, and an approval discharges the remaining balance on loans for that school and may refund past payments.

Which rules apply right now

This part is in flux. A borrower defense rule the department published on November 1, 2022 has been blocked by a federal court since August 2023, and the department says it will not decide applications under it, even though the application page still describes that rule. A July 2025 department letter implementing the One Big Beautiful Bill Act (GEN-25-04) delays the newer rules and applies the regulations in effect from July 1, 2020 to loans originated before July 1, 2035. It does the same for closed school discharge.

Under the 2020 standard, you have to show that the school made a false or misleading statement knowing it was false or with reckless disregard for the truth, that you relied on it in taking out the loan, and that it cost you money. Losses driven mainly by the economy or the job market do not count, and neither do losses from choosing not to work or changing careers. The regulation (34 CFR 685.206(e)) gives borrowers three years from the date they leave the school to file, for loans first disbursed from July 1, 2020 up to July 1, 2023.

After a payoff or a refinance

Borrower defense requires at least one outstanding federal loan tied to the school named in the claim. Refinancing with a private lender pays the federal loans off, and StudentAid.gov's discharge programs do not reach private loans at all.

Sources

Written by Kaz (pen name). Figures are copied from the sources' published pages on the dates shown. We have not used these products. Corrections: contact form.