How to get your student loans cancelled if your college abruptly shuts down

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What happens when a college gets a failing grade and goes out of business? While it’s not widely known, there is a process by which you may be able to have your student loans discharged if you were a student.

RELATED: Where to find scholarships for adult students returning to school

Brightwood College, Virginia College and more call it quits

Students enrolled at one particular family of colleges with campuses from coast to coast had a rough week when they discovered their future alma mater was going the way of the dodo.

Education Corp. of America (ECA), which runs more than 75 campuses across the country serving at least 20,000 students, discontinued operations without much warning this week after the company lost its accreditation and funding.

The Birmingham, Alabama-based company had been operating a for-profit college system offering “career-focused” diploma and associate’s degree programs.

ECA operated the following schools, all of which are closing shortly:

  • Brightwood College
  • Brightwood Career Institute
  • Ecotech Institute
  • Golf Academy of America
  • Virginia College
ECA campus announcement

What do you when a college you’re attending just up and closes on you?

You may remember last year when students who attended Corinthian College campuses — including Everest College and Wyotech campuses — became eligible for a special loan forgiveness process following the company’s bankruptcy.

Well, there’s something similar you can do if you’re an ECA student — only in this case, it’s petitioning the Department of Education for a “closed school loan discharge.” says a closed school loan discharge is essentially a cancellation of your outstanding loan. If you get the discharge, you no longer have any obligation to repay the loan and may in fact be reimbursed for payments that have already been made.

In order to start the closed school loan discharge process, you’ll have to contact your loan servicer directly. The Department of Education has a list of services here.

But before you begin, the DoE has an informative guide to closed school loan discharges that you can check out here.


Just heed this warning: The standard closed school loan discharge you’ll read about at that link only applies to federal student loans, not private student loans.

If you have private student loans, the DoE says you must contact your private student loan lender directly to learn what, if any, procedure there is in place for discharge of loans when a school you’re enrolled in closes.

This is a key reason why consumer expert Clark Howard has long warned against private student loans.

“I want you to avoid private student loans at all costs,” the consumer champ says. “If a degree exceeds what you can borrow under the federal student loan program, you should either pick a cheaper school or work your way through school.”

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