Many Impacted Borrowers Struggled Financially Despite Being Eligible for Loan Discharges (GAO-21-105373)
Summary
GAO testimony, GAO-21-105373, before the Subcommittee on Higher Education and Workforce Investment of the House Committee on Education and Labor on September 30, 2021. It is the statement of Melissa Emrey-Arras, Director, Education, Workforce, and Income Security, on college closures. It explains that when a college closes it can derail the education of many students, leaving them with loans but no degree, and that those who cannot complete their education may be eligible to have their federal student loans forgiven. Its title states that many affected borrowers struggled financially despite being eligible for loan discharges.
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United States Government Accountability Office
Testimony
Before the Subcommittee on Higher
Education and Workforce Investment,
Committee on Education and Labor,
House of Representatives
COLLEGE CLOSURES
For Release on Delivery
Expected at 10:15 a.m. ET
Thursday, September 30, 2021
Many Impacted Borrowers
Struggled Financially
Despite Being Eligible for
Loan Discharges
Statement of Melissa Emrey-Arras, Director,
Education, Workforce, and Income Security
GAO-21-105373
COLLEGE CLOSURES
Many Impacted Borrowers Struggled Financially Despite
Being Eligible for Loan Discharges
September 2021
Highlights of GAO-21-105373, a testimony before the Subcommittee on Higher Education and Workforce Investment, Committee on
Education and Labor, House of Representatives
Outcomes for Borrowers Who Attended Colleges That
Why This Matters Closed and Their Eligibility for Loan Discharges
When a college closes, it can derail the education of
many students, leaving them with loans but no degree.
Those who cannot complete their education may be
eligible to have their federal student loans forgiven
through a “closed school discharge” from the
Department of Education, but this process has
changed in recent years.
We examined what happens to borrowers after
colleges closed.
Key Takeaways
• About 246,000 borrowers were enrolled at over
1,100 colleges that closed from 2010 through 2020. a
Borrowers refers to students who borrowed federal student loans and met
certain eligibility criteria.
• 43% of impacted borrowers did not complete their
program before their college closed or transfer to b
Borrowers are not eligible for a discharge if they are completing or have
completed a comparable program at another college. Borrowers who transferred
another college—showing that closures are often the but did not complete their program are eligible for a discharge.
end of the road for a student’s education.
• Over 80,000 of these borrowers had their loans How GAO Did This Study
forgiven through a closed school discharge. We analyzed Education data on federal student loan
The majority of borrowers who had loans forgiven borrowers who were enrolled at colleges that closed
applied for it, but over 27,600 received relief through a from 2010-2020. We reviewed relevant federal laws,
new process that took effect in 2018 which automatically regulations, and agency documents. We also
discharged loans for eligible borrowers 3 years after a interviewed Education officials and subject matter
closure. experts.
The automatic discharge process has provided relief to
many borrowers struggling to repay their loans. More
than 70% of borrowers who eventually received an
automatic discharge were in default or past due on their
loans. These borrowers were facing severe financial
consequences (e.g., wage garnishments, reduced tax
refunds, credit score drops), but may not have been
aware that they were eligible for loan forgiveness.
Education eliminated the automatic process in July
2020, so borrowers impacted by future closures will have
to apply for forgiveness.
For more information, contact: Melissa Emrey-Arras at (617)
788-0534 or EmreyArrasM@gao.gov
United States Government Accountability Office
Letter Letter
Chair Wilson, Republican Leader Murphy, and Members of the
Subcommittee:
I am pleased to be here today to discuss the effect of college closures on
federal student loan borrowers. Recent college closures have derailed the
educational pursuits of many students. 1 For example, some recent
closures, such as ITT Technical Institute in 2016, as well as colleges
operated by Dream Center Education Holdings in 2019 and by Concordia
University in 2020, involved college chains that together enrolled
thousands of students across multiple campuses.
When a college closes, some students may be able to finish their
program before the school closes and others may choose to continue
their education by transferring to another college. However, for other
students a closure can be the end of the road for their education, leaving
them with student loan debt but no degree. Those that do not complete
their education may be eligible for a closed school discharge of their
federal student loans from the Department of Education (Education). 2
College closures can therefore be costly to students—who have spent
time, effort, and financial resources in pursuit of higher education—and to
taxpayers who ultimately may be responsible for the costs of the
discharged federal student loans.
My remarks today examine (1) what is known about borrowers who were
enrolled at colleges that closed; and (2) the extent to which these
borrowers received closed school discharges. For these objectives, we
analyzed data from Education’s Postsecondary Education Participants
System to identify college closures from January 1, 2010 through
1The Department of Education defines a college closure as a college, or branch campus,
that has ceased to provide educational programs and permanently closed its doors.
2Borrowers must meet certain eligibility criteria, such as attending the school when the
college closed or withdrawn soon before its closure. See 34 C.F.R. § 685.214(c). For the
purposes of this testimony, we are using the terms “loan discharge” or “discharge” to refer
to closed school loan discharges. Education also administers other kinds of student loan
discharges, including Borrower Defense to Loan Repayment, which gives discharges to
borrowers who attended colleges that misled them or engaged in other misconduct in
violation of state laws, as well as discharges related to total and permanent disability,
Perkins Loans, or death.
Page 1 GAO-21-105373
December 31, 2020. 3 We also analyzed data on the federal student loan
borrowers who were enrolled at colleges that closed from 2010 through
2020 or withdrew soon before the closure, making them potentially
eligible for a closed school discharge. 4 These data on borrower outcomes
and discharges are from Education’s National Student Loan Data System,
the agency’s central database for federal student aid information, and
were current as of April 2021 when Education provided the data to us. 5
We assessed the reliability of the data by comparing data elements used
in our analyses to data published by Education, identifying and removing
observations outside of the scope of analysis (e.g., closures prior to
2010), reviewing documentation about the specific data systems, and
interviewing Education officials responsible for these systems. As a result
of this assessment, we concluded that the Education data were
sufficiently reliable for reporting the number and characteristics of the
population of closed colleges and the student loan borrowers who were
enrolled at these colleges. We analyzed Education documents and
interviewed officials about the department’s policies and procedures for
closed school discharges. We also reviewed relevant federal laws and
regulations, and interviewed representatives from three organizations that
represent borrowers and two research organizations to obtain their views
on students’ experiences with applying for and receiving a closed school
discharge.
We provided relevant sections of this statement to Education for
comment. Education provided technical comments, which we addressed
as appropriate. 6
We conducted our work for this testimony in accordance with generally
accepted government auditing standards. Those standards require that
we plan and perform the audit to obtain sufficient, appropriate evidence to
3The Postsecondary Education Participants System is Education’s primary system for
tracking colleges’ eligibility to participate in federal student aid programs, including dates
of closures. We also analyzed data from Education’s Integrated Postsecondary Education
Data System to identify the sector of each closed college.
4We selected data from 2010 through 2020 because it allowed us to assess trends over
time for borrowers affected by closures.
5As later discussed, our analysis does not include students affected by Education’s
August 2021 announcement that it would make discharges available to approximately
115,000 additional borrowers who attended ITT Technical Institute.
6We are also conducting related work that will examine Education’s outreach to borrowers
about their eligibility for closed school discharges. We plan to complete this work in 2022.
Page 2 GAO-21-105373
provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
Background
Closed school discharge Students who were enrolled at a college that closed may be eligible to
eligibility have the full balance of their federal student loans forgiven if they are
unable to complete their program of study due to the closure of the
college. 7 To be eligible for a closed school discharge, federal student loan
borrowers (or a student on whose behalf a parent borrowed) generally
must: 1) have been enrolled when the college closed or withdrawn soon
before its closure 8; 2) not have completed the program of study at the
college before it closed; and 3) not be completing or have completed a
comparable program at another college through a teach-out 9 or by
transferring credits or hours earned at the closed college. 10
According to Education regulations, receiving a discharge qualifies
borrowers for reimbursement of any amounts previously paid or collected
on those loans. Additionally, Education is required under regulations to
report discharges to relevant consumer reporting agencies so that all
adverse credit history assigned to the loan can be removed from
borrowers’ credit reports.
7Parents who borrowed Parent PLUS Loans for a student enrolled at a closed college may
also be eligible for a closed school discharge.
8To fall within the eligibility window for closed school discharges, borrowers must have
withdrawn within 180 days of a college’s closure if they had loans disbursed on or after
July 1, 2020, within 120 days if they had loans disbursed from July 1, 2014 through June
30, 2020, or within 90 days if they had loans disbursed before July 1, 2014. Education
may also extend the window of eligibility if the Secretary determines that exceptional
circumstances related to a college’s closing justify an extension. Borrowers on an
approved leave of absence when the college closed may also be eligible for a discharge.
9Teach-outs refer to a written course of action that a closing school may take to help
students finish their programs of study. Some plans include written agreements between
the closed school and other schools that are still open for instruction that allow a student
to finish their program of study at one or more schools.
10Borrowers who transfer academic credits may still be eligible if they 1) do not complete
their program at the new school or 2) transfer from the closed college to a non-
comparable program of study at the receiver college.
Page 3 GAO-21-105373
Process for obtaining a Education manages the discharge process, including overseeing its
Closed School Discharge student loan servicers, which are responsible for receiving and reviewing
discharge applications and processing approved discharges. Loan
servicers are also required to send an application and explanation of the
qualifications and procedures for obtaining a discharge to all potentially
eligible borrowers after a college closes. 11
Borrowers have different options for obtaining a closed school discharge
depending on the date of their college’s closure. Borrowers impacted by a
closure can submit a closed school discharge application. In addition,
some borrowers are eligible to have their loans automatically discharged
by Education without filing an application through a process that took
effect in October 2018 12 if they were enrolled at a college that closed on
or after November 1, 2013 and did not continue their education by re-
enrolling in another Title IV-eligible college within 3 years of the school
closure. 13 Education created this automatic process to address concerns
that some eligible borrowers were not applying for discharges. The
process is generally intended to provide automatic discharges to
11As of July 2020, Education and its student loan servicers are solely responsible for
providing students with information about their potential eligibility for a closed school
discharge as a result of recently issued regulations rescinding a prior requirement that
closing colleges also provide this information to students. See Student Assistance General
Provisions, Federal Family Education Loan Program, and William D. Ford Federal Direct
Loan Program, 84 Fed. Reg. 49,788, 49,854, 49,910 (Sept. 23, 2019) (removing
paragraph (b)(32) from 34 C.F.R. § 668.14).
12The regulations were initially scheduled to take effect on July 1, 2017, but prior to the
effective date, Education issued a final rule establishing July 1, 2019, as the new effective
date. Following a series of lawsuits, a court vacated the delay of the 2016 regulations.
Consequently, the 2016 regulations went into effect October 16, 2018. See “Student
Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education
Loan Program, William D. Ford Federal Direct Loan Program, and Teacher Education
Assistance for College and Higher Education Grant Program,” 83 Fed. Reg. 6,458, 6,458-
69 (Feb. 14, 2018); Bauer v. DeVos, 332 F. Supp. 3d 181, 186 (D.C. Cir. 2018).
13See 34 C.F.R. § 685.214(c)(3)(ii). Borrowers must have otherwise met the qualifications
for enrollment at the closed colleges. This process was later eliminated for borrowers who
were enrolled at a school that closed after July 1, 2020. Colleges must meet requirements
under Title IV of the Higher Education Act to be eligible to participate in federal student aid
programs.
Page 4 GAO-21-105373
qualifying borrowers 3 years after their college closes. 14 Education
subsequently implemented new regulations that eliminated the automatic
discharge process for closures occurring on or after July 1, 2020,
meaning borrowers enrolled in colleges that closed after this date must
apply for a discharge (see fig. 1). 15
Figure 1: Timing of the Automatic Closed School Discharge Process
Note: Because Education does not automatically discharge loans until 3 years after the closure,
Education will continue to administer the automatic process through July 2023.
In August 2021, Education announced it will establish a negotiated
rulemaking committee in October to consider additional regulatory
revisions related to closed school discharges, among other issues.
14For example, borrowers who were enrolled at a college that closed in January 2017 and
otherwise met the eligibility criteria for a discharge would have been eligible to receive an
automatic discharge by January 2020. Because the regulations allow for borrowers who
were enrolled at colleges that closed as early as November 2013 to be eligible for
automatic discharges and the process did not take effect until October 2018, some
borrowers did not become eligible for an automatic discharge until more than 3 years after
their school closed.
15See 84 Fed. Reg. 49,788, 49,848, 49,930-31 (Sept. 23, 2019). Because Education does
not automatically discharge loans until 3 years after the closure, Education will continue to
administer this process through July 2023. When announcing the final regulations to
eliminate the automatic process, Education stated that providing automatic closed school
discharges to borrowers ran counter to its goals of encouraging students at closed schools
to complete their educational programs. The Department’s rationale also included the
belief that borrowers should be able to decide whether a discharge is in their best interest
and that the existing application process was not overly burdensome or difficult to
navigate. According to current regulations, the Secretary has discretion to discharge
borrowers’ loans without an application if the Secretary determines that the borrower
qualifies for the discharge of a loan based on information in Education’s possession. See
34 C.F.R. § 685.214(c)(3).
Page 5 GAO-21-105373
Most Borrowers
Impacted by a
Closure Were
Enrolled at For-Profit
Colleges and Many
Did Not Complete
Their Program or
Transfer
About 246,000 Borrowers About 246,000 borrowers 16 were enrolled at 1,106 colleges that closed
Were Enrolled at a from 2010 through the end of 2020. 17 These college closures ranged in
College That Closed from size from small branch campuses to large college chains serving tens of
thousands of borrowers across multiple locations. 18 Borrowers enrolled in
2010 through 2020, and colleges that closed collectively had about $4 billion in federal student
Most Attended For-Profits loans, with a median loan debt of about $9,500. 19 The total number of
students affected by college closures is even higher because students
16For the purposes of our analysis, “borrower” refers to any student who borrowed federal
student loans (or student on whose behalf a parent borrowed) and was either a) enrolled
or on an approved leave of absence when their college closed, or b) withdrew within the
window of eligibility for a closed school discharge. To fall within the eligibility window for
closed school discharges, borrowers must have withdrawn within 180 days of a college’s
closure if they had loans disbursed on or after July 1, 2020, within 120 days if they had
loans disbursed from July 1, 2014 through June 30, 2020, or within 90 days if they had
loans disbursed before July 1, 2014. Education may also extend the window of eligibility if
the Secretary determines that exceptional circumstances related to a college’s closing
justify an extension.
17For the purpose of our analysis, we combined college closures that 1) have the same 6-
digit Office of Postsecondary Education Identification Number (OPEID) and 2) closed
within the same calendar year. Because our testimony is focused on the impact of college
closures on borrowers, we did not include over 7,100 OPEIDs that Education reported as
closed but did not have any federal student loan borrowers enrolled or on an approved
leave of absence when the college closed or that withdrew shortly before its closure,
meaning there were no borrowers at these schools who potentially would have been
eligible for a closed school discharge.
18While some closures constitute a branch campus or campuses closing, the majority of
closures included the college’s main campus closing. From 2010 through 2020, about 800
main campuses closed.
19The average loan debt was about $16,400 per borrower.
Page 6 GAO-21-105373
who did not receive federal student loans were not included in our
analysis. 20
Both the number of college closures and affected borrowers have varied
since 2010, peaking in 2016 when the large for-profit chain ITT Technical
Institute closed (see fig. 2). Other large college closures include
Corinthian Colleges in 2015 and Dream Center Education Holdings in
2019. Although many experts initially predicted an increase in college
closures in 2020 due to the COVID-19 pandemic, college closures
decreased to the lowest levels since 2014 during this time, which some
experts have attributed, in part, to Congress providing about $75 billion in
stimulus funding to colleges throughout the course of the pandemic.
Figure 2: Annual Number of College Closures and Affected Borrowers, 2010-2020
a
GAO combined college closures that 1) have the same 6-digit Office of Postsecondary Education
Identification Number and 2) closed within the same calendar year. Colleges that closed without any
federal student loan borrowers enrolled prior to closure were not included in this analysis.
b
“Borrower” refers to any student who borrowed federal student loans (or student on whose behalf a
parent borrowed) and was either a) enrolled or on an approved leave of absence when their college
closed, or b) withdrew within the window of eligibility for a closed school discharge. Data reflect
20About 67 percent of undergraduate students did not participate in the federal student
loan program during the 2018-2019 school year, according to the most recent data from
the Integrated Postsecondary Education Data System. Education’s National Student Loan
Data System does not include enrollment information on these students.
Page 7 GAO-21-105373
borrowers as of April 2021 and include those borrowers who were enrolled at a college that closed
from calendar year 2010 through 2020.
Among borrowers affected by a closure between 2010 and 2020, 86
percent were enrolled at a for-profit college (see fig. 3). A relatively small
number of for-profit colleges accounted for a majority of borrowers
affected by college closures. About 51 percent of all borrowers affected
by college closures were enrolled at one of the 34 for-profit colleges that
enrolled 1,000 or more borrowers at the time they closed. Three of these
for-profit colleges that closed each had 10,000 or more borrowers
enrolled. During this time, seven nonprofit colleges also closed with 1,000
or more borrowers enrolled.
Figure 3: Federal Student Loan Borrowers Enrolled at a College that Closed from
2010 through 2020, by College Type
Note: Percentages may not add up to 100 due to rounding. GAO combined college closures that 1)
have the same 6-digit Office of Postsecondary Education Identification Number and 2) closed within
the same calendar year. Colleges that closed without any federal student loan borrowers enrolled
were not included in this analysis. Additionally, GAO measured the size of closures by how many
students who took out federal student loans (or whose parents who took out loans on students’
behalf) were either a) enrolled or on an approved leave of absence when their college closed, or b)
withdrew within the window of eligibility for a closed school discharge. Data reflect borrowers as of
April 2021 and include those borrowers who were enrolled at a college that closed from calendar year
2010 through 2020.
Over 40 Percent of A college closure represented the end of many borrowers’ educational
Borrowers Enrolled at a pursuits. Forty-three percent of borrowers enrolled at a college that
closed did not complete their program or continue their education by
College That Closed Did
transferring to another college, according to available data from
Not Complete or Continue
Their Education
Page 8 GAO-21-105373
Education. 21 In addition, 44 percent of borrowers transferred to another
college after a closure, and 13 percent were able to complete their
program prior to their college closing (see fig. 4). A greater proportion of
borrowers at for-profit colleges that closed did not complete their program
or transfer compared to borrowers at other types of colleges that closed.
At for-profit colleges that closed, 44 percent of borrowers did not
complete or transfer, compared to 34 percent of borrowers at nonprofit
college closures and 22 percent of borrowers at public colleges.
Figure 4: Educational Outcomes as of April 2021 for Federal Student Loan Borrowers Who Enrolled at a College that Closed
from 2014 through 2020
a
“Borrower” refers to any student who borrowed federal student loans (or student on whose behalf a
parent borrowed) and was either a) enrolled or on an approved leave of absence when their college
closed, or b) withdrew within the window of eligibility for a closed school discharge. GAO did not
include borrowers who were enrolled at colleges that closed prior to calendar year 2014 because
Education officials stated that the data on program completion for those borrowers had limitations.
b
For the purposes of GAO’s analysis, “transfers” refers to borrowers at closed colleges who re-enroll
at another college after a closure and take out federal student loans at the receiver college.
c
Borrowers who transfer academic credits or hours may also be eligible for a closed school discharge
if they transfer from the closed college to a non-comparable program of study at the receiver college.
Borrowers are not eligible if they are in the process of completing the program of study or a
21Our reported statistics on borrower outcomes are based on data from 2014 through
2020, unless otherwise noted. We did not include borrowers who attended colleges that
closed prior to 2014 because Education officials stated that the data on program
completion for those borrowers had limitations. Additionally, for the purposes of our
analysis, “transfers” refers to borrowers at closed colleges who re-enroll at another college
after a closure and take out federal student loans at the receiver college. Education
officials said the department is prohibited from collecting individualized data on students
who enroll without taking out federal student loans, but the limited data Education has on
these students and our own analysis of separate data from Education’s Beginning
Postsecondary Students Longitudinal Study suggest the number is small.
Page 9 GAO-21-105373
comparable program through a teach-out, or by transferring academic credits or hours earned at the
closed college to another college.
An additional factor that can affect whether borrowers are able to
continue or complete their education is the circumstances surrounding a
college’s closure. For example, colleges that cease operations in an
orderly process over several months can give students time to complete
the current school term and make arrangements to transfer and continue
their education at another school. We previously reported that the effect
from college closures is often worse if the closures occur abruptly with
little or no advance warning, because these colleges generally do not
have time to establish transfer arrangements that allow students to easily
continue their education at another college. 22
A college closure can have negative consequences for borrowers
regardless of whether they transfer or complete their program.
Transferring to another college after a closure enables borrowers to
continue their education, but it is not always in borrowers’ best interest,
according to Education officials and our analysis of Education data. For
instance, many borrowers who transfer lose credits in the transfer
process, transfer to colleges that are at-risk of closing, and struggle to
complete their education after transferring.
• Students often lose some college credits when they transfer. We have
previously reported that students who attend a for-profit college, which
account for most college closures, generally lose most of their credits
when transferring to a new college. For example, we reported that
students transferring among for-profit colleges, lost an average of 83
percent of their credits. 23 For-profit to for-profit transfers were the
most common transfer path among borrowers who were enrolled at a
closed college, accounting for about 37 percent of transfers from 2014
22See GAO, Higher Education: Education Should Address Oversight and Communication
Gaps in Its Monitoring of the Financial Condition of Schools, GAO-17-555 (Washington,
D.C.: August 2017).
23See GAO, Higher Education: Students Need More Information to Help Reduce
Challenges in Transferring College Credits, GAO-17-574 (Washington, D.C.: August
2017). We also reported that, on average, for-profit borrowers who re-enroll at public
colleges are unable to transfer 94 percent of their credits. From 2014 through 2020, about
30 percent of borrowers transferred from a for-profit to a public college.
Page 10 GAO-21-105373
through 2020. Borrowers who are unable to transfer credits could
incur additional costs to repeat courses. 24
• Some borrowers who already had their education disrupted from one
college closure transferred to another college that later shut its doors
as well. From 2014 through 2020, nearly 11,500 borrowers transferred
to a college that subsequently closed, accounting for about 5 percent
of borrowers affected by closures in that time period. If these
borrowers did not complete their program at the second college, they
are potentially eligible to discharge loans associated with both
colleges.
• Many borrowers who transferred did not end up completing their
programs at the new colleges. Of about 11,300 borrowers in our data
set that transferred prior to 2015, nearly 49 percent (about 5,500
borrowers) did not graduate within 6 years of transferring. 25 Borrowers
who transferred but are not currently completing their education may
be eligible for a loan discharge, whereas borrowers who transferred to
a comparable program and graduated are ineligible.
Borrowers who complete their program prior to the closure of their college
can benefit from having a degree, but the degree may be devalued by the
closure, according to Education officials. Representatives from a borrower
advocate group explained that when colleges close, the college may
suffer reputational damage and the quality of education may deteriorate
leading up to the closure. As a result, borrowers who get a degree at a
closing college may incur unmanageable amounts of debt in exchange for
a relatively low-value degree. These borrowers are ineligible for a loan
discharge.
24Some closing colleges may have established a teach-out process that may limit credit
loss. For example, some teach-outs include contracts with a receiver college that allow
students to transfer credits and finish their program of study after their college closes.
However, some schools, particularly those that closed abruptly, may not have an
approved teach-out process in place.
25We limited our analysis of 6-year graduation rates to borrowers who transferred between
2010 and 2014. This allowed us to include only borrowers who have potentially been at
the receiver school for 6 or more years.
Page 11 GAO-21-105373
The Discharge
Process Provided
Relief to Many
Borrowers Who
Struggled To Repay
Their Loans
Education Discharged Education has granted discharges to over 80,000 borrowers who were
Loans for over 80,000 enrolled at colleges that closed from 2010 through 2020. 26 These
Borrowers Enrolled at discharges provided an important protection to borrowers whose
educational pursuits were cut short through no fault of their own. In total,
Colleges That Closed from Education discharged about $1.1 billion of loans for borrowers at 682
2010 through 2020, Many college closures, and the median loan debt discharged for affected
through the Automatic borrowers was about $9,900. 27 Of all discharges Education granted to
Process borrowers, about 96 percent went to students at for-profit colleges, with
nearly two-thirds of discharges going to borrowers concentrated at just 21
for-profit colleges. This analysis reflects data as of April 2021. In August
2021, Education announced that the agency would make $1.1 billion in
discharges available to an additional 115,000 borrowers who attended
ITT Technical Institute prior to its closure in September 2016. 28 Education
expanded the closed school discharge eligibility window beyond the
standard 120 days to include borrowers who attended ITT Technical
26Education has also provided borrower defense loan discharges to about 5,300
borrowers who attended a college that closed and were potentially eligible for a closed
school discharge as well. According to Education documents, if a borrower at a college
that has closed may qualify for either a closed school discharge or a borrower defense
discharge, the agency encourages the borrower to apply for a closed school discharge.
The closed school discharge application process is generally less burdensome than the
borrower defense application process, according to Education documents and officials we
interviewed.
27Borrowers who received a discharge had slightly higher loan balances compared to the
median loan debt for all borrowers at a closed college, which was about $9,500. The
average amount discharged was about $13,700 per borrower, while the average loan
amount for all borrowers was about $16,400 per borrower.
28According to the announcement, the discharges are available to borrowers who left ITT
Technical Institute on March 31, 2008 or later and otherwise met the eligibility criteria for a
discharge. Most of these borrowers did not enroll at another institution within three years
of ITT Technical Institute closing and will receive a discharge automatically. Borrowers
who enrolled elsewhere but did not complete their program of study may still be eligible for
a discharge, but will need to submit an application, according to the announcement.
Page 12 GAO-21-105373
Institute on or after March 31, 2008. Borrowers who attended ITT
Technical Institute within 120 days of its closure who applied for a
discharge or received one automatically in 2019—3 years after the
college’s closure—are included in our analysis.
Automatic discharges have accounted for at least 42 percent of
discharges since borrowers became eligible for them in November
2013. 29 During this period, Education automatically discharged about
$360 million of loans for over 27,600 eligible borrowers who did not
proactively apply for and receive a discharge. In comparison, Education
discharged about $526 million to over 38,700 borrowers through the
traditional, application-based process (see fig. 5). A large proportion of
borrowers have received discharges through the automatic process, and
according to Education officials, some may not have been aware that they
were eligible for discharges. Education officials and representatives from
a borrower advocate group also told us that another reason some eligible
borrowers do not take advantage of application-based discharges is
because the onus is on those borrowers to apply for a discharge.
Education’s automatic process has therefore provided eventual relief to
borrowers who did not proactively apply.
Figure 5: Proportion of Federal Student Loan Borrowers Receiving a Closed School
Discharge by Type of Discharge, as of April 2021 for Colleges That Closed 2013-
2018a
29We are reporting the total number of discharges as of April 2021, the date at which
Education provided us data. Because borrowers are not eligible for an automatic
discharge until 3 years after their college closes, our analysis includes automatic
discharges for borrowers who were enrolled at colleges that closed up through April 2018.
Additionally, according to Education officials, loan servicers misclassified some initial
automatic discharges as application-based discharges in Education’s data system. As a
result, the actual proportion of automatic discharges may be higher than was indicated in
our analysis of the data. These officials said that when Education was first processing
automatic discharges, the department had not yet established a code to distinguish
automatic discharges from application-based discharges so all discharges, including
automatic discharges were coded as application-based. Officials said that loan servicers
may have also misclassified some automatic discharges when borrowers who were in the
process of applying for a discharge received one through the automatic process.
Education officials stated that they have provided servicers guidance on how to report
discharges, and this is no longer an issue.
Page 13 GAO-21-105373
a
GAO is comparing application-based discharges and automatic discharges for borrowers enrolled at
colleges that closed from November 2013—when borrowers first became eligible for automatic
discharges—and April 2018, the most recent closure date for which borrowers could have received
an automatic discharge at the time of analysis. Eligible borrowers who were enrolled at a college that
closed on or after November 1, 2013, and before July 1, 2020 become eligible for automatic
discharges 3 years after the college closes.
Although the automatic process may catch many eligible borrowers that
do not receive application-based discharges, it is not an option for some
borrowers. Under Education regulations, borrowers who transfer after a
college closure but do not complete their program at the receiver college
are generally eligible for a closed school discharge if they submit an
application, but they are not eligible to receive a closed school discharge
through the automatic process. 30 Of about 5,500 borrowers who
transferred prior to 2015 and did not complete their programs within 6
years, only about 700 applied for and received discharges as of April
2021. The remaining borrowers (about 4,800) may be eligible for a loan
discharge if they apply, but will not receive an automatic discharge under
Education’s current rules.
Most Borrowers Who About 73 percent of borrowers who eventually received automatic
Received Automatic discharges—that is, eligible borrowers who did not apply for and receive a
discharge—faced difficulty repaying their loans. Specifically, 52 percent of
Discharges Struggled to
these borrowers defaulted on their loans, and an additional 21 percent
Repay Their Loans were past due on their loans by 90 days or more at some point during
Although They Were
Eligible for Relief
30See 34 C.F.R. § 685.214(c)(3)(ii). Similarly, borrowers who transfer to non-comparable
programs are generally eligible for loan discharges if they apply, but they will not receive
discharges automatically. When Education and loan servicer officials assess borrower
applications for closed school discharges, they use a variety of factors to determine
whether two programs are comparable. These factors include the academic or
professional nature of the programs, the similarity in course requirements, and the
treatment of transfer credits. However, Education officials told us that while colleges report
data on programs borrowers attend, these data are not sufficient to make determinations
about whether programs are comparable for the purpose of administering automatic
discharges.
Page 14 GAO-21-105373
repayment. 31 More than half of the borrowers who fell into default before
receiving an automatic discharge did so within a year and a half of their
college closing. Since Education processes automatic discharges 3 years
after a closure, many borrowers were facing the consequences of default
for a substantial amount of time before receiving an automatic discharge.
Borrowers who eventually received automatic discharges faced higher
rates of default than other borrowers. For instance, borrowers receiving
automatic discharges defaulted at about five times the national average
and about twice as frequently as borrowers who completed their program
at colleges that closed. This is consistent with Education reporting that
shows that borrowers who do not complete their degree, such as
borrowers who are eligible for automatic discharges, are at elevated risk
for default. 32 Further, we found that borrowers receiving automatic
discharges defaulted at about nine times the rate of those who applied for
and received discharges. About 11 percent of the borrowers who applied
for and received a discharge were at least 3 months past due on their
loans at some point, and only 6 percent defaulted on their loans. 33
Although many borrowers were at risk of facing severe financial burdens
from their federal student loans that were past due or in default, they did
not apply for a discharge. Borrowers in default may be subject to wage
garnishment or reductions in federal or state income tax refunds and
31About 20,100 of the 27,600 borrowers who received automatic discharges faced
difficulty repaying their loans. This includes about 14,300 borrowers who defaulted and an
additional 5,800 who were past due on their loans by 90 days or more. Student loan
servicers report borrowers who are past due on their federal student loan for 90 days or
more to the three major national credit bureaus. If a borrower is past due on their loans for
270 days or more their loan may go into default. However, borrowers past due on their
loans for fewer than 360 days can avoid default if they begin making payments or
postpone loan payments through forbearance or deferment. Borrowers’ reported past due
or default status corresponds to any loans associated with the closed college they
attended. In limited circumstances, the loans reported as past due or defaulted may be
different from the loans that were automatically discharged, for instance if the borrower
had previously completed one degree at the school and was pursuing another degree at
the same college at the time of closure.
32Students who take out college loans but do not graduate are nearly three times more
likely to default than borrowers who complete their program, according to data from
Education’s Beginning Postsecondary Students Longitudinal Study.
33Borrowers receiving application-based discharges are less likely to go into default in part
because most (75 percent) receive their discharges within one year of the school closing.
Because loans past due for 360 days or more are considered in default, these borrowers
likely did not have loans in repayment long enough to default.
Page 15 GAO-21-105373
some Social Security benefits to collect on the defaulted loan. 34 Defaulted
loans and loans past due for 90 days or more will also appear on the
borrower’s credit record, which may make it more difficult for them to
obtain other loans and could also harm their ability to obtain a job or rent
or buy a home. 35
Many borrowers who were struggling to repay their loans eventually
received relief through the automatic discharge process. Since Education
eliminated the automatic process for closures beginning in July 2020,
borrowers impacted by future closures will have to apply to receive a
discharge. Those who do not apply for a discharge, potentially because
they are not aware of their eligibility, may face long term financial burdens
from student loans that are past due or in default, even though those
loans are eligible to be discharged.
Chair Wilson, Republican Leader Murphy, and Members of the
Subcommittee, this completes my prepared statement. I would be
pleased to respond to any questions that you may have at this time.
If you or your staff have any questions about this testimony, please
GAO Contact and contact Melissa Emrey-Arras, Director, Education, Workforce, and
Staff Income Security Issues at (617) 788-0534 or EmreyArrasM@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Acknowledgments Affairs may be found on the last page of this statement. GAO staff who
made key contributions to this testimony include Will Colvin (Assistant
Director), Brian Schwartz (Analyst-in-Charge), Kristy Kennedy, Jon
Muchin, and Michael Naretta. In addition, key support was provided by
Andrew Bellis, James Bennett, Deborah Bland, Gina Hoover, John
Mingus, Jessica Orr, Rachel Stoiko, and Adam Wendel.
34Upon default, the entire unpaid balance of the loan and any accrued interest is
immediately due. Defaulted borrowers may also be ineligible for assistance under federal
loan programs and may not receive any additional federal student aid until the loan is
repaid in full or the borrower resolves the default through other means, such as loan
consolidation or loan rehabilitation.
35Borrowers with poor credit ratings may also be charged a higher interest rate than
someone with a good credit rating. They also may have trouble obtaining car loans or
other forms of consumer credit, signing up for utilities, or obtaining a cell phone plan,
according to information from Education.
(105373)
Page 16 GAO-21-105373
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