Have you ever thought your college could be going bankrupt and you are still stuck with repaying your student loans? These closures happen more often than most of us would think! A school closes, often out of nowhere, and the people who were hoping for a degree are left holding the bag – at least in terms of their student loan debts, on the money that they paid to finance their education.
So what happens? Well, schools are supposed to offer what’s called a “teach-out”, to help those who have paid in to graduate.
What is a teach-out ?
A teach-out is a strategy that focuses on providing the necessary education for students already enrolled, offering specialized programs to facilitate their graduation.
Furthermore, certain borrowers may have opportunities for loan modification or cancellation, particularly with new Biden administration initiatives. However, many students frequently find themselves in a state of panic, unsure of their next steps.
What You Need to Know if Your College is Going Bankrupt?
Sadly, it sometimes seems like schools are closing left and right. For example, the Department of Education estimates that at least 30 schools closed their doors in 2023 alone.
Many of these schools are categorized as “SLACs”, or Small Liberal Arts Colleges, which are often among those hardest hit by financial pressures.
“The President just called all the students into the auditorium and announced it,” writes one student at such an institution, a SLAC, who was worried about loan status. “Just like that. No warning, not even for the faculty and staff. There were prospective students touring campus this morning. Students had already been admitted for next year. They hired new faculty for next year. There was no warning whatsoever. … This school has a $94 million endowment, regional accreditation in good standing, and a 114-year history. All SLACs are suffering financially, we are just among the first dominoes to fall because we’re rural and single-sex. This is a warning to all of you who go to small liberal arts colleges: none of you are safe.”
That’s particularly bad news for students still entering into majors in the humanities, in schools that have not pivoted more robustly toward STEM or science areas.
Larger School Closures
Some of the closures affect more students than others. In 2024, for example, one of the larger closures among private colleges was the closure of the College of Saint Rose in New York, which was estimated to affect 2786 students enrolled there.
Then, state schools and other institutions can also merge or split, as seen in the case of Indiana University/Purdue University in Indiana, where over 27,000 enrolled students heard about the change.
Whether it’s an outright closure or a consolidation, the result can be challenging for someone who has already enrolled and begun to complete their degree, with significant school debt that may follow them for many years.
School Closure Shockwaves: The Aftermath!
So often, the news of closure clashes with all of the things the school was previously doing.
“Last week, the President of my school sent out an email saying the Board of Trustees had voted to close the University by the end of the year,” writes a student. The author does not specify what school he/she was enrolled in, but revealed that it was in Oregon, where Concordia closed in 2019.
“This is very sudden, and unexpected,” the writer continues. “Over winter break, they remodeled/began remodeling several buildings. New graduate level programs just had their launch parties one week prior to this announcement. The University administration (the President & reps from the Board of Trustees) have specified the school has not lost accreditation, nor are they in debt. This closure is meant to prevent the school from getting into debt, as they have said their budget predictions/proposals indicate they will be around $3,000,000 short of what will be needed. According to recent tax forms, there is some $19,000,000 in endowments that are intended for scholarships, however administration has said they have no way of accessing/liquidating that money for the purpose of saving the school. My first question is, how true is that? Is there any way to know where that money will go after the school shuts down?”
In this particular case, the writer suggests a teach-out process is in play, but it’s a short-term fix, writing:
“The University is attempting to Teach-Out as many students as they can during Summer term (we are on a quarter system) but there’s only so many classes one can take. The highest I’ve heard of someone planning is 20 credits (5 classes). They have said they will not extend their Teach-Out past Summer term.”
More Schools Getting the Axe
The trend continues. Here’s an example that’s going on right now.
“Birmingham-Southern College will cease operations on May 31, 2024, following an 18-month effort to obtain bridge funding from a $30 million state loan program conceived and enacted to save the 168-year-old, nationally ranked liberal arts institution,” reports a press release from the school. “The College Board of Trustees voted unanimously today to close the College after a 2024 bill designed to amend the 2023 legislation that established the loan program failed to win sufficient support in the Alabama House of Representatives.”
Conclusion
If the school itself couldn’t get a loan, how are the students supposed to fare as they see their school shut down?
The above shows some of what is happening in the world of higher education, just one of the many obstacles that can affect students.
In any case, if you are facing this challenge, look up what the Department of Education has to say, and what the Consumer Financial Protection Bureau (CFPB) offers. And stay up on this blog where we report on the industry, on behalf of borrowers!
