School closure won't erase loan debt

01/01/2009

QUESTION:
Dear Joe,

The majority of my student loans are privately funded (not government-backed) loans. It turns out that the school I was attending wasn't accredited like it said it was, so I left.

After restarting my education elsewhere, the unaccredited school closed. I read somewhere that if a school closes before you are able to finish your education there, your loans are supposed to be forgiven. Is this true?

-- Christa

ANSWER:
Dear Christa,

It's true that student loans may be dischargeable if the school you were attending closed, but that applies only to certain categories of federal loans. Private lenders are not subject to these rules, and the discharge of a private student loan because the school closed would be unusual, to say the least.

For excellent information about loan cancellation and other topics involving student debt, I recommend the Student Loan Borrower Assistance Web site operated by the National Consumer Law Center. Simply plug "closed schools" in the search box to locate an explanation for federal loan cancellation programs.

There's also a link from that site to the list of closed schools the U.S. Department of Education maintains.

To resolve any problems concerning your private student loan, contact your lender directly and ask about your options. If you decide to continue your higher education, discuss this situation with the school you will be attending. The aid office may be able to come up with additional financial assistance.

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