Starting this month, students with government-guaranteed education loans will not have to repay them if the school closes. Any interest or payments already made by the students after closing also will be refunded.

The Federal Family Education Loan Program changed its loan-forgiveness program to comply with rules put into effect by the Education Department July 1.

Under the program, which this year will back $20 billion in loans to students and their parents, borrowers will no longer be responsible for loans when trade schools or colleges are closed because of financial reasons or shut down by regulators.

Protecting Students, Parents

"A school closing doesn't spell financial ruin for students and parents who have taken out guaranteed loans," said Edward E. Pollack, president of United Student Aid Funds Inc., the nation's largest guarantor of student loans.

USA Funds, which guarantees more than $4 billion in loans annually, predicted that the government's efforts to weed out unscrupulous schools would spur more closings in the near future.

Guarantor Makes Refunds

Eligible borrowers who attended a school that has closed should first notify their lender. Once notified, the lender can immediately grant a forbearance, giving the student temporary relief from making payments.

The lender then will forward the borrower's request for loan forgiveness to the guarantor, which is responsible for discharging the loans and making refunds.

To qualify, the loan must have been disbursed on or after Jan. 1, 1986, the school must have been closed before the student received a degree or certificate, and the student could not have completed the education program by transferring credits to another institution.

Also, the student must have been in attendance at the school when it closed, on an approved leave of absence, or have withdrawn from the program no more than 90 days before it closed.

Students who have stopped paying their guaranteed loans or who have been declared in default may also qualify for the program.

Credit-Rating Restoration

The rules also say that credit ratings must be restored for borrowers who defaulted on their loans because school closings prevented students from completing their course work.

If the loan is in default, the student should contact the loan guarantor, which must immediately grant a forbearance and stop collection efforts.

After all the paperwork is submitted to the guarantor, the borrower must be notified whether the loan has been forgiven within 30 days.

How to Qualify for Student Loan Forgiveness

Loan must have been disbursed in full, or in part, on or after Jan. 1, 1986

Loan must have been used to fund the student's education at a school that has closed

School must have closed before the student was granted a degree or certificate

Student must have been in attendance at the school at the time of closing, on an approved leave of absence, or have withdrawn from the program no more than 90 days prior to the closing

Student did not complete the education program by transferring credits to another institution

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