September 30, 2021
Almost all of the student loans that the federal government discharged because a college closed were owed by students who had attended for-profit institutions, a new government watchdog report concluded.
The U.S. Government Accountability Office, at Congress’ direction, explored the closed-school discharge program, which enables the U.S. Department of Education to cancel loans for students who were enrolled at institutions that shut down. It detailed an automatic loan forgiveness process that the Trump administration scrapped.
The GAO studied information of 246,000 borrowers at 1,106 schools that closed from 2010 to the end of 2020. More than 40% of those borrowers did not transfer or complete their programs before their college closed.
Students who can’t finish their education because their college closed can often have their federal loans discharged, which could be an important protection against the downside of being saddled with loans they can’t pay off. However, in many cases these students may be unaware they are eligible for loan forgiveness or have trouble navigating the government’s processes.
The Obama administration attempted to alleviate some of these difficulties by issuing a regulation that automatically discharged loans for certain borrowers whose schools closed. President Donald Trump’s Education Department nixed that rule.
Yet the GAO found the automatic procedure helped thousands of borrowers. More than 27,600 borrowers whose schools closed between 2013 and 2018 had their loans canceled through this route, accounting for 42% of the discharges in that period. The agency found 58% of the discharges, for some 38,700 people, came after borrowers submitted applications.