If your college abruptly shuts down amid investigations—as ITT Technical Institutes announced it was doing today—your student loans won’t necessarily be canceled, student debt experts warn.
While the federal government has been making it easier for students who attend troubled colleges to get out of at least some of their loans, the process can be complex.
That’s what’s facing the 40,000 students who have been left college-less by the closure of ITT, as well as hundreds of thousands of former students who are still paying off loans for ITT and other problematic colleges, including recently shuttered Corinthian Colleges.
If you believe you might be a candidate for student loan cancellation, here’s what you need to know:
- Current students can get their loans canceled only if they drop out. The federal student loan cancellation program for students of closed schools does not apply to students who immediately transfer to an open and accredited college, warns Robert Shireman, a former U.S. Department of Education official who now studies for-profit colleges at The Century Foundation. ITT students and others who want their loans canceled “should not move too quickly to attempt to transfer units elsewhere or to accept a ‘teach-out’ by another college, especially if it is a for-profit,” he says. It may be financially smarter to wait and get all your loans canceled, then start again fresh somewhere better. Here is a Department of Education explanation of the rules.
- Graduates or previous dropouts face a different, potentially much slower, process. The government is still drafting final rules and procedures for some parts of its new loan cancellation program, notes Betsy Mayotte, director of consumer outreach and compliance for the Center of Consumer Advocacy at American Student Assistance. The rules affecting graduates and dropouts are scheduled to take effect next July 1, she adds. If you don’t want to wait, you can apply on an ad hoc basis by following the instructions here. But Mayotte cautions that some applications may not be processed until after the rules are finished next year.
- Private student loan borrowers have few cancellation options. Very few banks, credit unions, or other non-federal lenders allow you to cancel loans for attending a bad or closed college, notes Abby Shafroth of the National Consumer Law Center. However, she adds, a few states do have some cancellation programs, and it never hurts to ask. “Students should call their lender to ask about the availability of relief, and also look into whether they are eligible to have their private loans paid off by a state student tuition recovery fund or state bond program,” she says.
- Help is available for anyone struggling with federal loans. Whether or not students attended a closed or fraudulent college, they can apply for income-driven repayment plans “to help reduce their monthly federal student loan payments and qualify for forgiveness of their student loans after a period of qualifying payments,” advises Shafroth.
In a related story, here’s our advice on 8 ways to stop student loans from ruining your life.