Published in: Student Loans | Dec. 19, 2019

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

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College doesn't work out for everyone. Here's how bailing on your studies will impact your student debt. 

Not everyone who starts college winds up finishing it and walking away with a degree. You might come up with a great business idea midway through your studies and leave school to pursue that venture. Or you might have a different reason for abandoning college. But regardless of why you're dropping out of school, if you've already taken out student loans, leaving college could put you in a situation where you're forced to start paying them back sooner than expected. 

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How dropping out of college impacts your loans

Most student loans come with a grace period -- a period of time following your studies during which you don't have to start paying them back. With federal loans, that grace period is six months long. With private loans, it's often six months long as well, though there are no preset regulations, so you'll need to check with your lender to see what your loan agreement entails.

Grace periods are generally triggered once you're no longer enrolled in college. As such, if you drop out of school midway through and don't enroll for an upcoming semester, you'll begin your grace period. Once that period ends, you'll need to start repaying the loans you took out. 

Keep in mind that unless you took out federal subsidized loans, your student debt will continue to accrue interest during your grace period. So if you're dropping out of college to start working immediately, it's beneficial to start chipping away at that debt as soon as possible. 

Will dropping out of college make it harder to repay your loans?

If you're dropping out of college to pursue a lucrative business opportunity or to work full-time at a job with a decent salary, then paying off your student debt may not be all that difficult -- or at least no more difficult than it would be for the typical college grad who finishes school and gets a job. But remember, statistically speaking, job seekers with college degrees tend to score higher salaries than those without degrees. If you're not able to lock in a decent wage following your studies, you might struggle to repay your debt. 

If that's the case, your best bet is to make that debt as affordable as possible. If you took out federal loans, you can see about getting on an income-driven repayment plan, which will recalculate your monthly student debt payments as a reasonable percentage of your income. If you took out private loans, you can try negotiating with your lender for a lower interest rate to make your debt less expensive. And if that doesn't work, there's also the option to refinance to a new student loan with a lower interest rate. 

Either way, make sure to stay on top of your student loans to avoid a scenario where you wind up defaulting. Once that happens, you face a host of negative consequences, from wage garnishment to long-term damage to your credit score. Unfortunately, student loan borrowers who don't wind up with a degree are three times more likely to default on their debt than borrowers who complete their studies, so make every effort to avoid becoming part of that statistic.

That's one reason to think long and hard about your decision to drop out of college. You may find that you're able to complete your degree by switching majors, adjusting your schedule, or taking a little time off to work and saving money to ease the financial burden. If you can, you'll be able to benefit from the higher salary you'll likely earn after the fact. 

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