89-329, as amended). How will they finance future postsecondary educational pursuits? Next, it discusses issues related to financing a postsecondary education, including the extent to which borrowers may have any loans borrowed to finance educational expenses discharged due to a school closure and whether future financial assistance, including federal student loans, Pell Grants, and GI educational benefits, may be available to students should they decide to continue their postsecondary education at another IHE. Finally, this report describes some potential income tax implications for students when their IHE has closed, including the extent to which they may incur a federal income tax liability for loans discharged and whether higher education tax credits remain available to them in future years. Academic Options and Consequences

In the event of a school closure, currently enrolled students must consider their academic options, including whether they will continue pursuing their postsecondary education, and if so, where. Teach-out agreements are used when an IHE ceases operations before all of its enrolled students are able to complete their programs of study. Credit Transfer

In lieu of a teach-out, students of closed IHEs may be able to continue their postsecondary education by transferring some or all of the credits earned at the closed IHE to another IHE. Thus, if a student is unable to transfer any credits from a closed IHE to another IHE, the student's previously earned credits will not count toward the accepting IHE's SAP calculation and would not have the potential to affect the student's aid eligibility with respect to SAP at the new IHE. Closed School Loan Discharge Eligibility
Typically, to be eligible for loan discharge due to school closure, a student must have been enrolled in an IHE when it closed or must have withdrawn from the IHE within 120 days prior to its closure. In addition, the student must have been unable to complete his or her program of study at the closed school or in a comparable program at another IHE, either through a teach-out agreement or by transferring any credits to another IHE. However, in general, a borrower may not qualify for a closed school discharge in the following scenario: a student refuses the teach-out, later enrolls at another IHE in a program comparable to the one in which he or she had been enrolled, receives t ransfer credit for work completed at the closed school, and completes the program at the new IHE. Borrower Defense to Repayment

Even if borrowers who attended a closed school are ineligible for a closed school loan discharge, they may, in certain circumstances, seek debt relief on their Title IV student loans by asserting a borrower defense to repayment (BDR) certain acts or omissions of an IHE, if the cause of action directly relates to the loan or educational services for which the loan was provided. For eligible loans made on or after July 1, 2017, a borrower may assert as a defense to repayment one of the following, as it relates to the making of a borrower's loan for enrollment at the IHE or the provision of the educational services for which the loan was made (hereinafter, "post-July 1, 2017, standard"):
A substantial misrepresentation by an IHE that the borrower "reasonably relied on to the borrower's detriment when the borrower decided to attend, or to continue attending, the school" or decided to take out certain loans; A nondefault, contested state or federal court judgment against an IHE; or A breach of contract by an IHE, where an IHE failed to perform obligations under the terms of a contract with a student, such as the provision of specific programs or services. A borrower may also be eligible to have all or part of amounts previously paid toward or collected on his or her loan reimbursed by ED. P.L. Loan Limits

Generally, annual and aggregate borrowing limits apply to Title IV student loans. However, for borrowers who receive a closed school loan discharge or who successfully assert a BDR claim, the discharged loan will not count against the borrower's Subsidized Loan usage period. State Tuition Recovery Funds (STRF)

In addition to available debt relief, some states operate state tuition recovery funds (STRFs), which may reimburse students for charges paid to closed IHEs that are not covered by other sources. The availability of and eligibility for such funds vary by state; not all states operate STRFs. If the payment is excluded from the student's income, the student may be required to account for previously claimed federal education tax benefits, as discussed below.
When an institution of higher education (IHE) closes, a student's postsecondary education may be disrupted. Students enrolled at closing IHEs may face numerous issues and may be required to make difficult decisions in the wake of a closure. Two key issues students may face when their IHEs close relate to their academic plans and their personal finances.
The academic issues faced by students when their schools close include whether they will continue to pursue their postsecondary education, and if so, where and how they might do so. Students deciding to continue their postsecondary education have several options. They may participate in a teach-out offered by the closing institution or by another institution. A teach-out is a plan that provides students with the opportunity to complete their program of study after a school's closure. Students may also be able to transfer the credits they previously earned at the closed IHE to another IHE. If a student is able to transfer some or all of the previously earned credits, he or she would not be required to repeat the classes those credits represent at the new institution; if a student is unable to transfer previously earned credits, the student may be required to repeat the classes those credits represent at the new IHE. Decisions regarding the acceptance of credit transfers are within the discretion of the accepting IHE.
The financial issues faced by students when their schools close include whether they are responsible for repaying any loans borrowed to attend a closed school and how they might finance any additional postsecondary education they pursue. In general, a closed school loan discharge is available to a borrower of federal student loans made under Title IV of the Higher Education Act (P.L. 89-329, as amended), if the student was enrolled at the IHE when it closed or if the student withdrew from the IHE within 120 days prior to its closure. Additionally, the student must have been unable to complete his or her program of study at the closed school or a comparable program at another IHE, either through a teach-out agreement or by transferring any credits to another IHE. Borrowers ineligible for a closed school discharge may be able to have eligible Title IV federal student loans discharged by successfully asserting as a borrower defense to repayment (BDR) certain acts or omissions of an IHE, if the cause of action directly relates to the loan or educational services for which the loan was provided. Whether a borrower may have discharged all or part of any private education loans borrowed to attend the closed IHE may depend on the loan's terms and conditions.
Some students may also face issues regarding how they might finance future postsecondary educational pursuits. If a borrower receives a closed school discharge or has a successful BDR claim, the discharged loan will not count against the borrower's Subsidized Loan usage period, which typically limits certain borrowers' receipt of Direct Subsidized Loans for a period equal to 150% of the published length of his or her academic program, and a borrower's statutory annual and aggregate borrowing limits on Direct Subsidized and Direct Unsubsidized Loans are unlikely to be affected. Students who receive a Pell Grant for enrollment at a school that closed may have an equivalent amount of Pell eligibility restored. Likewise, if the student used GI Bill educational benefits from the Department of Veterans Affairs for attendance at a closed school, those benefits can be restored.
Students may be reimbursed for payments on charges levied by closed IHEs that are not covered by other sources from a State Tuition Recovery Fund (STRF). The availability of and student eligibility for such funds vary by state, and not all states operate STRFs. Finally, the receipt of any of the above-mentioned benefits may have federal and state income tax implications, including the potential creation of a federal income tax liability for borrowers who have certain loans discharged.