What to Do if Your College Is Closing

·6 min read

College closures can be a nightmare scenario for students. This often means scrambling to understand their options, looking for a new school and being thrust into uncertainty about their future amid financial turbulence.

And college closings are not necessarily uncommon. Data from the National Center for Education Statistics shows that 53 colleges closed in the 2019-2020 school year. That number was even higher the prior year with 236 reported closures.

The nature of such closings varies, from big for-profit chains -- such as colleges owned by the Education Corporation of America shuttering dozens of campuses at once in 2018 -- to small nonprofit colleges withering away.

[Read: How Many Universities Are in the U.S. and Why That Number Is Changing.]

Closures can be especially difficult when they are abrupt, experts say.

"Students who are at a school, when it closes, have invested their time and their money -- oftentimes money that they don't have -- in hopes of securing an education, a job or a better future for themselves and their family," says Debbie Cochrane, bureau chief at California's Bureau for Private Postsecondary Education. "And sometimes, in an instant, those investments can seemingly disappear."

The bureau's Office of Student Assistance and Relief can help students navigate the sudden challenge of their school closing. But the variance of state laws means that some students have resources to navigate the minefield of college closures and others do not.

"Unfortunately, there are students who have to deal with these things individually," says Amy Laitinen, director for higher education with the education policy program at New America, a think tank. "They shouldn't have to deal with the fallout of policy failures at multiple levels. But unfortunately, right now they do because everybody is falling down on the job from the Department of Education, to the states, to the accreditors, to the schools."

Though a school closure may be devastating for many students, the good news is that they are not without options. From financial aid refunds to transfer options, students stuck in a college closure can make the best of a bad situation.

How to Navigate a College Closure

"My advice for students when a school closes is to, first of all, not panic, to calm down, and to take the time they need to figure out what the best option is for them," says Robyn Smith, an attorney with the National Consumer Law Center.

Above all, Smith encourages students to be patient and explore the avenues available to them.

"They have at least six months of a grace period during which they don't have to start repaying their federal loans," Smith says. "They should use that time to figure out what their best options are instead of rushing into anything."

[Read: College Closings and Financial Aid: What to Know.]

Sometimes school closures are long, drawn-out processes. Other times shutdowns can seemingly happen overnight. But the first step for students when they hear the news that their college is closing is to get their records as soon as possible, experts say. Records to gather include transcripts, financial documents and communications with the school.

Since record maintenance varies by state, students need to make sure they have documentation of their own.

"Those records are going to be critical to helping students figure out what their next academic steps are, and also how much financial relief they might be entitled to under federal or state laws," Cochrane says.

Experts urge students to err on the side of caution and meticulously collect records in case those are needed. Similarly, they encourage students to keep a log of their conversations with school officials should those be needed later. Additionally, students should reach out to local legal aid offices for help navigating a college closure.

Understand Teach-Out Programs and Refund Options

Some colleges also offer teach-out programs as part of their plan to wind down operations. How such programs operate varies. While some colleges cease accepting new enrollments and remain in business until current students graduate, others sign agreements with other schools so students can immediately transfer and continue their programs.

As with any enrollment decision, students should look carefully at teach-out programs before choosing to participate, experts say. They particularly encourage students to understand their options, know how many credits will transfer and explore student outcomes at partner schools such as graduation rates and postgraduate earning, which are available via the College Scorecard.

Experts urge students to ask if teach-out agreements are with reputable schools and approved by an accrediting body. Students should also be wary of high-pressure tactics that push them to quickly enroll at another college.

"If anyone's trying to rush you into signing up at a new school, don't do it. It's a sign that that is not a good school," Smith says.

[READ: How Prior Learning Assessments Can Cut College Costs.]

Getting off the hook for loans taken out on a school that shuts down is another option through a U.S. Department of Education policy known as "closed school discharge." According to the Federal Student Aid website, that means: "If your school closes while you're enrolled or soon after you withdraw, you may be eligible for discharge of your federal student loan. Loan discharge is the removal of your obligation to repay your loan under certain circumstances."

"Closed school discharge relief is terrific," Smith says. "You get all your loans canceled, you get refunds of anything that you paid, including any tax refunds that were taken from you or wages that were garnished. And all of the negative information regarding those federal loans comes off your credit history."

Depending on the teach-out options available, closed school discharge may be a better pathway for students.

"If the agreements are only with schools that the student doesn't think are good, reputable schools, they may want to take the closed school discharge instead, depending on how much debt they have, and how much longer they have in their program," Laitinen says.

Eligible students can apply for closed school discharge through the Department of Education website.

"There's no cost to filling out an application for loan discharges, but not filling out the application can be quite costly," Cochrane says.

The Department of Education is in a negotiated rule-making process, which means some things may change. Borrower defense, a topic that includes recourse for student loan borrowers when a school closes, is tabbed for discussion, which could affect closed school discharge rules.

Planning the Next Move When a College Closes

Experts encourage students who experience a college closure to approach their next move with patience and caution. Students should look for red flags such as large enrollment fluctuations up or down. For example, if a college is adding a high number of new programs and subsequently students, that move could simply be a cash grab, Laitinen says.

On the flip side, if a college is losing a high number of students, that could suggest quality issues, she adds.

Students should also look into the accreditation status of the college. It's more important, experts say, to take time to find a quality program that will help a student meet his or her goals than it is to jump to another school at the promise of finishing a degree quickly. While starting over may be a frustrating process, it may ultimately lead to a rewarding path.

"It's a really good idea to stop and find a school that is well respected by employers and has a good record as far as student outcomes," Smith says. "So what I tell students is, instead of rushing into anything, do your research."

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