Feds Deny Loan Relief for Thousands After Colleges Shut Down

Nearly 246,000 borrowers are eligible for student loan forgiveness after their colleges closed between 2010 and 2020, according to a U.S. Government Accountability Office review. Despite this large pool of qualified debtors, the Department of Education has recently rejected applications from many of them, a move now challenged in federal court.

The legal battle centers on a rule change made in late 2024 by the Biden administration. Under that policy, the look-back period for loan discharge was extended for borrowers at specific closed institutions. This expansion allowed students who had left school more than six months before the closure to still qualify for debt cancellation. Kendrick Gaussoin, a photography student at Brooks Institute in Ventura, California, relied on this rule. He had taken an eight-month leave of absence in 2015 before the school shut its doors in August 2016. Under standard rules, he was ineligible, but the new policy made him eligible for relief on his nearly $22,000 in debt.

Gaussoin applied for discharge on Aug. 23, 2026, citing the expanded eligibility window. A week later, on Aug. 31, the Trump administration denied his request. The denial letter stated he did not meet the traditional pre-2024 requirements. The Department of Education defended its stance through spokesperson Ellen Keast, who called the previous expansion unlawful. She argued that the change shifted debt onto taxpayers without proper justification.

Critics point to precedent from the first Trump administration. In 2019, Secretary Betsy DeVos used the same legal authority to expand the look-back window for students at the Art Institute of Colorado and the Illinois Institute of Art. She stated at the time that students deserved to be made whole. Bonnie Latreille, a former official in the office of Federal Student Aid, says the current denial raises legal flags. She notes that a top department official instructed staff to pause processing discharges under the expanded rule without approval from the new administration.

The lawsuit was filed Wednesday by Student Defense, a nonprofit advocacy group, in federal court. The group argues the administration cannot simply ignore the previous rule change. Attorneys say the department must provide a reasoned legal explanation to reverse the policy. The department has not responded to requests for its specific legal justification.

Brooks Institute, founded in 1945, closed after its parent company shut it down. Enrollment had declined following a 1999 sale, and borrowers accused the school of misleading students about costs and job placement. Gaussoin’s mother, Christine, also owes about $28,000 in Parent PLUS loans. Her application for discharge was also denied this month. Both borrowers remain in debt without a degree, working in retail and online sales to manage their payments.