What Happens to Student Loans When You Drop Out of College?

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If you have student debt and are considering leaving school, you’re probably wondering what happens to your student loans if you drop out. Ultimately, you’re still responsible for all the student loan debt you incurred — so it’s crucial to know what to do next. Read on to learn about exit counseling, grace periods, and how to pay off your loans if you drop out.

What happens to student loans when you drop out?
How to pay off your loans if you’re considering dropping out
Whatever you do, don’t panic

What happens to student loans when you drop out?

If you received federal student loans but don’t plan on returning to school, you have a 120-day window to cancel a loan disbursement before you’re liable for the money.

Private student loan companies have their own requirements, so it’s important to check with your lender. For example, Sallie Mae will accept a returned refund check to lower your total cost.

Students worried about what happens to their loans when they drop out should first go through exit counseling, which is required when a student who received federal loans graduates or leaves school.

During exit counseling, you learn about repayment options, such as deferment and forbearance. You’ll be reminded about your six-month grace period if you have direct subsidized or unsubsidized loans.

Your grace period begins the day after you stop attending school at least half time. After your grace period ends, you’re required to start making payments on your federal student loans. Unless your loan is subsidized, your interest will grow during that grace period, inflating your balance from the time you drop out.

One option is to 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.

You may be rightfully worried about your student loans if you drop out, especially if you do so without exit counseling. Contact your student loan servicer and ask what repayment options are available to you.

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.

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.

Look into 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.

Explore student loan refinancing

If you have federal student loans and you’re dropping out of school, you could think about refinancing your loans. When you refinance, you can simplify your debt by consolidating multiple loans into one. You could possibly lower your interest rate or get a shorter payment term.

Students dropping out of school should be wary about refinancing, though. Doing so makes you ineligible for advantages such as 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.

While some private lenders require that you’ve earned your degree, there are some that will refinance your student loans if you didn’t graduate. If you can find a lender such as Citizens Bank that may refinance your private student loans for an uncompleted degree, refinancing may be a good offer.

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.

Before signing any paperwork, make it a point 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 otherwise getting from the lower APR.

Don’t panic

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.

If that’s not an option, look into your options for repayment plans to find one that fits your budget.

Rebecca Safier and Cat Alford contributed to this article.

Interested in refinancing student loans?

Here are the top 6 lenders of 2020!
LenderVariable APREligible Degrees 
1.99% – 5.64%1Undergrad
& Graduate

Visit Earnest

1.89% – 5.90%2Undergrad
& Graduate

Visit Laurel Road

2.25% – 6.28%3Undergrad
& Graduate

Visit SoFi

1.89% – 6.77%4Undergrad
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Visit Splash

2.39% – 6.01%Undergrad
& Graduate

Visit Elfi

1.99% – 5.61%5Undergrad
& Graduate

Visit CommonBond

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1 Important Disclosures for Earnest.

Earnest Disclosures

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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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 7/31/2020. 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 [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 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

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.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.28% APR (with AutoPay). Variable rates from 2.25% APR to 6.28% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. 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 0.16% effective Sep 1, 2020 and may increase after consummation.

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.