Emergencies happen, and you might find yourself needing to take a break from college. But taking a semester off from college could impact your financial aid, so it’s important to be prepared for what might happen.
If you need to take time away from school, here’s what could happen to your funds.
- How taking a break from college could affect financial aid
- Where to look for repayment help
- Know your options if you have to take a break from school and have financial aid
Circumstances can change your college trajectory. You might need to take time off school for a few reasons, such as to manage a family emergency or stress or so you can work more to pay your bills.
Whether you’re taking off a semester or an entire year, you don’t need to pay for classes you didn’t sign up for, said Jay Murray, president of Solutions for Tuition, a college cost assistance company.
“If you weren’t enrolled in school, then you didn’t borrow any money for that year,” he said. “You will, however, be required to begin making payments on your existing federal student loans six months after leaving school, regardless of whether you graduated, withdrew or dropped out.”
And you should continue to submit the Free Application for Federal Student Aid (FAFSA) every year to access financial aid. Depending on your circumstances, you might be able to update your FAFSA information during the school year to gain additional financial aid.
What happens to my student loans?
While some federal student loans are considered part of your financial aid package, not all loans are handled the same way when you take time off.
If you take a semester off, it shouldn’t make much of a difference for your federal loans. Most federal loans have a six-month grace period. When you return to school at least half-time after taking a semester off, the grace period on your loans will reset, provided you didn’t exceed it.
Some private student loans also have a grace period, but it depends on your terms, lender and enrollment situation. Talk to your school or lender about your options if you have private student loans.
And remember that you only have to pay back the student loans you actually borrowed. If you don’t borrow money during your time off, you don’t have to worry about paying back additional loans.
That said, you might have to deal with interest accrual on your private loans and unsubsidized federal loans.
What happens to my scholarships and grants?
Scholarships and grants are a bit different than loans. Murray said taking a break from college hurts your chances of keeping scholarships when you return.
“Students who were awarded a merit scholarship are at [the] greatest risk,” he said. “When students take time off school, they violate the satisfactory academic progress requirement and may forfeit their scholarship for all remaining years, even when returning to school.”
Many private scholarships and grants don’t take a one-size-fits-all approach. Some do require you to maintain a minimum number of course hours each semester, and you could lose aid if you drop below full- or part-time enrollment.
If you’ve received scholarships and grants, talk to your issuers about what will happen to your awards if you take time away from school. You should also inquire about grace periods.
Since everyone’s situation is unique, talk to your school’s financial aid office or college adviser about what will happen to your grants and scholarships once you return to class. Your college might have different standards for receiving aid based on your enrollment.
If you take longer than a semester off school or have loans that require payments while you’re still a student, you might need help staying current on your debt. Here’s what to do, depending on which types of loans you have.
Federal student loans
Your enrollment status could affect your repayment. If you have federal student loans, you could qualify for deferment or forbearance. Deferring your loans pauses your payments for up to three years, while forbearance pauses your payments for up to 12 months.
Depending on your loan type and lender, you could defer student loans interest-free during that time. If you’re currently enrolled or you’re planning to return to school, deferment could help you avoid making payments until you graduate. If you have unsubsidized loans, however, interest will continue to accrue during deferment.
Private student loans
With private lenders, you aren’t entitled to any sort of financial relief. Some private lenders do offer deferment and forbearance options, depending on your loan type, terms and the lender. But it’s not common.
Federal student loans are more flexible when it comes to repayment terms. Private student loans are stricter. There’s no universal standard for private student loan forgiveness since each lender operates on its own terms.
If you’re having trouble with your private student loans while you’re taking time away from school, contact your lender about your struggles. It might seem tempting to simply not pay your loan back if you can’t afford it, but dodging payments will hurt your credit score.
Regardless of why you need to take time away from school, remember that everyone’s financial situation is unique. If you need to be away from classes for a semester or more, talk to your school’s financial aid office about your student aid to understand what you’re responsible for while you’re away.
Rebecca Safier contributed to this report.
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1 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.
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 June 23, 2020. Information and rates are subject to change without notice.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
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 May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 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 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% 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 June 15, 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 6/15/2020. 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.
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 0.19% effective June 10, 2020.