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People Are Telling Me My Art Institute Student Loans Can Be Forgiven

By on August 11, 2015

Question:

Dear Steve,

I’m a student at an Art Institute campus that is closing. Because of that I’ve been receiving several “debt forgiveness” “tips” from Student Optimum Services and American Student Loan Help Center. Are any of these valid?

Answer:

As far as I am aware, the fifteen Art Institute locations which will no longer enroll new students, are not in fact closing, yet. According to Art Institute, the following campuses will stop new enrollments: Atlanta (Decatur), Fort Worth, Houston (North) Jacksonville, Kansas City, Michigan (Troy), New England, New York City, Cincinnati, Salt Lake City, Silicon Valley, Tinley Park, Washington (Dulles), Wisconsin, and York.

Correspondence sent to First Coast News, the plan is for at least the Art Institute in Jacksonville, Florida to remain open 2-3 more years. – Source, Source

The link you sent me from Student Optimum Services has the headline “Art Institutes Is Latest For-Profit To Close It’s Doors – Forgiveness Available.” – Source

But it does not seem that speaks about the finer points of the issue.

I think some clarification may be in order. It is true that if you have federal student loans and a school closes, some forgiveness may be available. But the Art Institute is not closing at this time, just ceasing new enrollments.

If you would be eligible for a future loan discharge, keep in mind the forgiven loans may be taxable and you may have to pay income tax on the forgiven debt.

But for federal loan forgiveness for an approved Title IV school that closes, here are the requirements for forgiveness:

You may be eligible for a 100% discharge of your Direct Loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans under either of these circumstances:

  • Your school closes while you’re enrolled, and you do not complete your program because of the closure. If you were on an approved leave of absence, you are considered to have been enrolled at the school.
  • Your school closes within 120 days after you withdraw.

But you should know, you would not eligible for discharge of your loans if your school closes and any of the following is true:

  • You withdraw more than 120 days before the school closes.
  • You are completing a comparable educational program at another school through a teach-out agreement with the school, by transferring academic credits or hours earned at the closed school to another school, or by any other comparable means.
  • You have completed all the coursework for the program, even if you have not received a diploma or certificate.
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But according to EDMC, the parent company of Art Institutes, “The company will undergo a teach out process at each location, meaning each campus will continue to offer courses, student services and placement assistance until the last student has graduated, according to Hardman.” Hardman is the spokesman for EDMC. – Source

“EDMC expects the teach out process to take about two to three years. Where possible and where it benefits the student, they will be invited to transfer to another Art Institute location, subject to a review of their academic transcript and the transferability of the credits they have earned, according to Hardman.”

So if the school is continuing to offer classes that would allow you to graduate, then it appears your federal student loans would not be eligible for forgiveness.

Now the interesting twist to this situation is what would happen to your federal student loans if you elect to not accept the “teach-out” option with the Art Institute. If you decline the offer and the school closes, according to the CFPB, you may not have to pay back your student loans. But making sure you pay attention to the specific rules on forgiveness is important. Clearly it appears if you withdraw more than 120 days before the school closes, you would not be eligible for a discharge.

And of course the big downside to the teach-out refusal is if your degree is within reach, you are turning your back on getting the degree. All of your time and studies will have not resulted in your desired degree.

It is too early to tell what the “teach-out” plan will be at Art Institute but at another recent school that closed, here was their offer to students who has recently enrolled:

“☐ I choose to complete my program of study. I understand that by this choice, I will also receive career planning and placement services to assist me in finding a job for at least 60 days after I complete my program. I understand that to complete my program, I may be required to transfer to a comparable program at a comparable school; if I must transfer, I will have no additional cost above the amount I would have been charged to complete my program at Everest Institute and that job placement services and other post-graduation services would be provided by the receiving institution;
OR
☐ I choose not to complete my program of study at this school, and to withdraw from Everest Institute and receive a full refund of all tuition and other fees I paid for my program. If I received a federal loan, the school will pay this refund to the government to reduce my loan obligation. If I received a private student loan that was directly disbursed to the school, you will pay the refund directly to me. If I paid the school directly, you will repay the same amounts directly to me.” – Source

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I’m not aware if EDMC has filed a formal “teach-out” plan yet. You’ll have to keep your eyes open for that and see what the details are.

Now that’s the lowdown on federal student loans. If you owe private student loans and the school closes at any time, as the CFPB says, “you will still be responsible for repaying them. However, some states may have programs that assist students with private student loans in the event of a school closure. In addition, some private student lenders may offer options to assist certain borrowers in this situation.” – Source

For more information on how to deal with problem student loans, read The Ultimate Guide to Dealing With Student Loans You Can’t Afford.

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About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

2 Comments

  1. Steve Rhode

    June 1, 2016 at 3:43 pm

    Joshua, here is the article you should read.

  2. Gwendydd Stclair

    January 12, 2016 at 7:45 am

    I went to IADT in 2010-2011 found out none of the credits including gen eds transferable I owe 25,000 dollars and had to retake all classes I had taken there and here is the kicker. The clashes at IADT are cliff notes versions of those classes basically 1/4 th of what you learn at an accredited school. How is this legal to owe for that much for a quarter of the education needed to get employment and be competent at a job with enough education to be roughly the village idiot.

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