Canceling Student Loans: School Closure, False Certification, Unpaid Refund

Sometimes you can get rid of your student loans altogether.

Updated by , Attorney · University of Denver Sturm College of Law

Legal Update: After the U.S. Supreme Court struck down President Biden's debt cancellation plan, the administration introduced a 12-month "on-ramp" repayment program. Beginning October 1, 2023, and for a year after that, the Education Department won't report borrowers who miss payments to the credit bureaus, consider them delinquent, place them in default, or refer them to debt collection agencies. But interest will accrue.

In addition, the Biden Administration announced that, in February 2024, it would start canceling federal student loan debts for anyone who initially borrowed $12,000 or less and has been in repayment for at least 10 years if they first enroll in the SAVE income-based repayment plan. The timeframe for loan forgiveness increases by one year with each additional $1,000 of debt. So, for example, a student who took out $14,000 in loans would have their debts canceled if they've been making payments for 12 years. It doesn't matter what repayment plan or plans you previously had, so long as you were actively repaying your loans and are enrolled in the SAVE plan. In the future, the Department of Education will continue to identify and forgive the loans of eligible borrowers on an ongoing basis. However, on March 28, 2024, eleven Republican-led states filed a federal lawsuit arguing that President Biden overstepped his authority in creating the SAVE Plan.

Under some circumstances, you can get rid of your student loans altogether through loan cancellation. To cancel your loans, you must meet one of the conditions that allow you to do so. In this article, we discuss three of those methodscancellation due to school closure, false certification, and unpaid refund.

What Happens If Your Student Loans Are Canceled?

If you qualify for cancellation of your student loans, you might be able to:

  • completely wipe out the loan balance
  • get reimbursed for any payments you have made or that have been taken from you through tax intercepts or wage garnishments, or
  • eliminate some or all future student loan payments.

In addition, certain types of discharges treat the loan as if you never owed it, like closed school and false certification discharges, and wipe out all negative references in your credit reports.

If only a portion of your debt is wiped out due to the school's failure to pay a required refund on your loan, your credit reports must state that a portion of the loan was discharged.

Grounds for Canceling Your Student Loan

The below ways to cancel your loan—school closure, false certification, and unpaid refunds—are most likely to apply to students who attended private, for-profit schools. These schools typically offer vocational courses, degrees, or online courses.

Cancellation of Student Loans Due to School Closure

Many former students were lulled into taking out student loans to attend a school with glowing descriptions of future careers and high salaries, only to have the school deteriorate or close before they could finish the program. You can cancel an FFEL, Direct, or Perkins loan if you received any of the loan proceeds after January 1, 1986, as well as the portion of a consolidation loan used to pay off any of these loans if you were unable to complete the program because the school closed:

  • you were enrolled when your school closed
  • you were on an approved leave of absence when your school closed
  • your school closed within 120 days after you withdrew if your loans were first disbursed before July 1, 2020, or
  • your school closed within 180 days after you withdrew if your loans were first disbursed on or after July 1, 2020.

You aren't eligible for cancellation of your loans if your school closes and any of the following applies to you:

  • Except in exceptional circumstances, you withdrew more than 120 or 180 days (depending on the circumstances) before the school closes.
  • You're completing a comparable educational program at another school through a teach-out agreement with the school, by transferring academic credits or hours earned at the closed school to another school, or by any other comparable means.
  • You completed all the coursework for the program, even if you haven't received a diploma or certificate.

Student Loan Cancellation Due to False Certification

If the school did not make sure that you were qualified to attend the program, you might be able to cancel your loans based on "false certification." This program applies to FFEL or Direct loans if you received any of the loan proceeds after January 1, 1986, as well as the portion of a consolidation loan used to pay off one of these loans. (If you had a Perkins loan, you might have other grounds to have the loan canceled, but will need to contact an attorney familiar with the intricacies of student loan law for help.)

Typically, the grounds for false certification are any of the following:

  • Your school falsely certified your eligibility to receive the loan based on your ability to benefit from its training, and you didn't meet the ability to benefit student eligibility requirements.
  • The school signed your name on the application or promissory note without your authorization or the school endorsed your loan check or signed your authorization for electronic funds transfer without your knowledge unless the proceeds of the loan were delivered to you or applied to charges owed by you to the school.
  • Your loan was falsely certified because you were a victim of identity theft.
  • The school certified your eligibility, but because of a physical or mental condition, age, criminal record, or other reason you're disqualified from employment in the occupation in which you were being trained.

Canceling Student Loans Because of Unpaid Refunds

You might be eligible for a discharge of your Direct Loan or FFEL Program loan if the school failed to pay you a refund that it owed you because you never attended the school or you withdrew from the school and were owed a refund for the time left in the program. In addition, some states have funds to reimburse students who didn't get refunds due to them.

Applying for Student Loan Cancellation

To learn more about the different types of student loan discharges, go to the U.S. Department of Education website. To learn the process for canceling a student loan, contact your loan servicer.

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