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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?

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.

 

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