Thinking about dropping out of college? You’re not alone.
According to the National Center for Education Statistics, in 2016 only 81% of traditional, college freshmen seeking degrees at four-year schools returned to school for their sophomore year. Public institutions with open admission policies, like many community colleges, had a retention rate of 62%, meaning that only 62% of new students returned for their second year of school.
Those who do not graduate in a traditional time frame may face additional obstacles. Many spend several more years struggling toward a degree, while others simply drop out. What happens to student loans when you drop out? You’re still responsible for all the student loan debt you incurred, and you don’t have the same competitive advantage in the job market as graduates.
What happens to student loans when you drop out?
Without steady work, students are at risk of defaulting on their loans. According to the Urban Institute, 42% of those carrying student debt have an associate degree or less. Although these former students tend to carry far less debt than those who finished their four-year degrees, they struggle to stay out of default as their income tends to be much lower than their counterparts.
Defaulting on your loans could damage your credit score quite a bit, making it tough to open a credit card, qualify for a home or access other financial tools for which consumers need good credit. In other words, you want to avoid defaulting on your student loans at all costs.
Exit counseling, grace periods and reducing student loan debt
Students who are worried about what will happen to their student loans when they drop out should take the first step of going through exit counseling. If a student who received federal loans graduates or leaves school, they are required to go through exit counseling.
Exit counseling is valuable because you learn about repayment options, such as deferment and forbearance.
- Direct subsidized loans
- Direct unsubsidized loans
After your grace period is over, you will be required to start making payments on your federal student loans. However, interest still accrues during that period unless your loan is subsidized, inflating your balance between the date you drop out and the date when you are required to start making payments.
To address this, you can begin making interest-only payments during your grace period. These payments will be minimal, but making them as you go rather than waiting can reduce the overall amount of money you’re paying.
It’s important to know that you don’t have to keep your student loans from your final, partial semester. If you return the money within 120 days of it being disbursed, you won’t be held liable for federal student loan debt. Private student loan lenders have their own requirements, so it’s important to check. For example, Sallie Mae will accept a returned refund check to lower your total cost.
You may be rightfully worried about your student loans if you drop out, especially if you do so without exit counseling. You might not know about these options and stop paying your bills when you encounter financial hardship. But the best thing to do in this situation is to call your student loan servicer and ask which repayment options are available.
How to pay off your loans if you’re considering dropping out
If you do drop out of college, you have several options for paying off your student loans. While your debt burden may feel crushing, there are ways to make it manageable depending on your situation.
Consider returning to school part time
One way to handle student loan debt if you drop out is to go back part time.
In many programs, part time is considered six to eight hours of schoolwork — the equivalent of two or three classes per semester. By going to school part time, your student loans will go into deferment and you can still work.
If you work during the day and go to class at night, it will allow you to make money and possibly prevent you from having to take out more student loans. At the same time, the payments on your current student loan balance will not be due until you graduate.
The bonus, of course, is that when you do graduate, you’ll likely be more employable thanks to that college degree. Ideally, you’ll be making more money than you were before. This, in turn, will make it easier to pay your student loan bill each month.
If you know that college isn’t right for you, you can also consider going to trade school. Your student loans may still be deferred while you’re in school, and you can learn a skill that can lead you to a career where you make more money. This is a great option for those looking to increase their income without going back to a traditional university.
Consider a longer repayment plan
When it comes to your student loan payments, there are numerous repayment options. You don’t have to have a 10-year repayment plan with high monthly bills. Instead, if you have student loans when you drop out, you can call your student loan servicer and ask if you qualify for other repayment options that will lower your bill.
One of your options is income-driven repayment, where your bill would be a portion of your income. Call your student loan servicer to see if you qualify. If you don’t and are having trouble paying your bills, ask about forbearance until you can get back on your feet.
Consider refinancing your loans
If you have federal student loans and you’re dropping out of school, you should be wary of refinancing. Doing so makes you ineligible for advantages like income-driven repayment, forgiveness programs and potential loan cancellation. If you’re struggling to pay your federal student loans, a better path may be to contact your loan servicer prepared with information and questions about different programs for which you may be eligible.
Many private lenders will not refinance your loans if you have not completed your degree. If you can find a lender like Citizens Bank that will refinance your private student loans for an uncompleted degree, refinancing may be a good deal. If a lender is offering you a lower APR than what you’re already paying, you could conceivably save money over the life of your loan, especially if you don’t extend the term. Be sure to look for the APR rather than the interest rate, since the APR accounts for both the interest rate and any other fees.
Make sure to read and understand your entire loan agreement. You don’t want to find out about any surprise fees or other additional costs that could eat into the savings you were getting from the lower APR.
Sometimes people drop out of college because they have other responsibilities that are more important, such as taking care of family members or working. Others simply learn college isn’t right for them. Many more can’t afford it.
Quitting school is a difficult decision, especially if you have student loan debt, but you shouldn’t panic because of student loans after you drop out. There are numerous repayment options available to you. If you decide to return to college or trade school, you can buy yourself more time to pay off your debt.
Your focus should be to eliminate your student loans as quickly as possible if you drop out of school so that you can spend your time focusing on the goals you want to pursue next.
Cat Alford contributed to this article.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.50% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.43% APR (with Auto Pay) to 7.21% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.43% – 7.21%1||Undergrad & Graduate|
|2.43% – 6.65%2||Undergrad & Graduate|
|2.43% – 6.59%3||Undergrad & Graduate|
|2.44% – 6.87%4||Undergrad & Graduate|
|2.46% – 7.08%5||Undergrad & Graduate|
|2.93% – 9.67%6||Undergrad & Graduate|