Department of Education Secretary Betsy DeVos recently made the news after a judge slammed her decision to continue collecting payments from former Corinthian Colleges students. A court order barred the Education Department from collecting loans of former students. However, the court order did not stop Betsy DeVos, whose department continued to pursue the payments. As a result, thousands of former students faced wage garnishments and tax refund seizures. Many others made unnecessary payments.
Corinthian Colleges was a for-profit higher education company that shut down after allegations of fraud as well as having high default rates and generally poor outcomes for students. While not all for-profit universities are necessarily bad, Corinthian Colleges became an example of a bad actor in the industry.
The Consumer Financial Protection Bureau (CFPB), a federal consumer protection agency, sued Corinthian Colleges and eventually settled for $480 million. Corinthian Colleges shut down in 2015.
Although Corinthian Colleges is perhaps the best known example of a for-profit secondary education company closing before students could graduate, there are other recent examples.
A similar scenario is currently unfolding with schools operated by Dream Center Education Holdings, LLC. Last week, 30 attorneys general sent Secretary DeVos a letter urging her to help students who are indebted to the company. Dream Center Education Holdings, LLC operates the Art Institutes, South University and Argosy University. The Art Institutes has campuses in Texas, Georgia, Virginia and Florida.
Can I Discharge My Student Loan Debt if My School Closes?
Borrowers may be able to discharge higher education debt if their school closes before they can graduate. This option is called the “closed school discharge”. We have also previously written about this option on our blog.
However, there are requirements to be eligible for a closed school discharge. The school must have closed while the students were enrolled or within 120 days of a student taking an approved leave of absence. Additionally, the rule also applies to students who withdrew within 120 days of the closure and did not transfer their credits to another university.
Thirty state attorneys general are asking the Education Department to extend the eligibility period. If the Education Department granted the request, it would make tens of thousands of borrowers eligible to receive tax-free loan forgiveness. This means that the borrowers would not have to pay taxes on their forgiven loans, unlike many borrowers who are enrolled in income-driven repayment plans.
There are other eligibility requirements to receive a closed school discharge. You must have federal loans. The Education Department does not handle private loans, so private higher education debt is not eligible for forgiveness through a closed school discharge.
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