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Dropping out of college is a significant decision that can have far-reaching implications, particularly when it comes to student loans. Many students find themselves in a challenging financial situation after leaving school, unsure of what happens to the loans they’ve taken on and how to manage them.
Here, we’ll walk you through the consequences of dropping out when you’ve already incurred debt, and show you ways to pay off outstanding student loans.
Key Points
• If you drop out of college, you still have to repay your student loans. Federal loans typically have a six-month grace period before payments start.
• Missing payments can lead to serious consequences, including credit damage, wage garnishment, and legal action.
• Income-driven repayment plans can lower monthly payments based on income, and refinancing may reduce interest rates but removes federal protections.
• Deferment or forbearance may temporarily pause payments, but interest may still accrue.
• Returning to school at least half-time can defer payments, and refinancing might help if you don’t need federal benefits.
Do I Have to Pay Back My Student Loans If I Drop Out of School?
Regulations dictate that if you leave college or drop below half-time enrollment, you have to start paying back your federal student loans. You may have a grace period (generally, six months) before your first payment is due. Even if payments aren’t due yet, interest may still accrue during the grace period, depending on the type of loans you have.
If you have private student loans, check with your lender to determine when you need to start paying back your loans.
If you’re currently still in school or left very recently before earning a degree, you may be able to request student loan exit counseling from your school, a service normally provided only to graduates. This can help you understand your options, including potential tuition reimbursement. Each school has a different refund policy.
What Happens if I Don’t Pay My Student Loans?
The consequences of late or “delinquent” payments vary by lender, but you can generally expect to be charged late fees each time you miss the due date. If a payment is late by 30 days or more, that information can be reported to the three credit bureaus — Experian®, Equifax®, and TransUnion® — which will negatively affect your credit score.
If you stop paying your student loans for 270 days (about nine months), your federal loans go from being delinquent to being in student loan default. When that happens, the balance is due in full, including accrued interest, collection agency fees, and any other fines, fees, and penalties. Student loans generally cannot be discharged during bankruptcy.
The government can go to great lengths to get their money back, including:
• Garnishing your paycheck, up to 15% of wages after deductions
• Withholding your tax refund
• Going after cosigners for the amount due
• Suing you in court for the outstanding amount, plus court fees and other expenses
Private student loans generally go into default after 90 days (and don’t qualify for the on-ramp protections). Private lenders may also take you to a court or use collection agencies to recoup student loan debt. Defaulting can wreck your credit, making it challenging for you to obtain a mortgage loan, car loan, credit card, homeowners insurance, or new utilities.
Ways to Pay Off Student Loans If You Didn’t Finish School
Once you leave school, it’s a good idea to begin paying off your loans as quickly as you can, paying more than the minimum payment whenever possible. Before paying ahead, though, check to see if any of your student loans have a prepayment penalty. If so, paying early can cost you money.
Should you refinance your student loans? What about income-driven repayment programs? Below are the best options to help ease financial hardship and avoid default.
Income-Driven Repayment Plans
Income-driven repayment (IDR) plans reduce your monthly federal student loan payments based on your discretionary income and family size. They currently extend the length of the repayment period up to 25 years. After that, any remaining loan balance is forgiven, though the canceled amount may be subject to income taxes.
Enrolling in an income-driven repayment plan won’t have a negative impact on your credit score or history. However, income-driven plans aren’t always the lowest monthly payment option. And even when monthly payments are lower, you will pay more interest over time (longer loan terms mean more interest payments).
Borrowers must recertify their income each year. If they fail to do so, they’ll be returned to the standard 10-year amortizing plan.
Keep in mind that under Trump’s new One Big Beautiful Bill, three of the four income-driven repayment plans will end on July 1, 2028. Borrowers must switch to the one remaining plan, the Income-Based Repayment (IBR) plan, or the new Repayment Assistance Plan (RAP).
The Repayment Assistance Plan (RAP) is a new income-driven repayment plan that’s based on borrowers’ adjusted gross income (AGI), with a $50 monthly reduction per dependent. The RAP plan provides cancellation after 30 years of payments, unlike current income-driven repayment plans that provide cancellation after 10-25 years.
Going Half-Time
Students who are enrolled at least half-time in an eligible college or career program may qualify for an in-school deferment. This type of deferment is generally automatic. If you find the automatic in-school deferment doesn’t kick in, you can file an in-school deferment request form.
Recommended: Refinancing Student Loans with Bad Credit
Refinancing Student Loans
While you’re still able to make your student loan payments and your credit is still good, consider student loan refinancing. You can combine multiple loans into one payment, ideally with a better interest rate and terms.
As your financial situation improves, you can make additional payments (as long as you refinance with a company that doesn’t charge a prepayment penalty) or refinance again with a new term that will accelerate payoff and allow you to pay less interest over the lifetime of the loan.
It’s important to note that by refin
It’s important to note that by refinancing your federal student loans, you will not be able to access federal programs like income-driven repayment plans, Public Service Loan Forgiveness (PSLF), and government deferment or forbearance. If you don’t need any of those benefits, a lower student loan interest rate gained by refinancing could be worthwhile.
Serious savings. Save thousands of dollars
thanks to flexible terms and low fixed or variable rates.
What to Do if You Can’t Afford Any Student Loan Payments
If you find yourself in a situation where you cannot afford to make any student loan payments, it’s important to take immediate action to avoid defaulting on your loans. The first step is to reach out to your loan servicer to discuss your options. They can provide you with information about deferment and forbearance, which are temporary solutions that allow you to pause or reduce your payments.
Although deferment or forbearance can give you short-term financial relief, these plans will increase the amount of interest you’ll pay on the loans overall, and can extend the length of the loans.
Student Loan Deferment
Student loan deferment allows eligible borrowers to temporarily reduce loan payments or pause them for up to three years, depending on the type of loan. In most cases, borrowers seeking a deferment will need to provide their loan servicer with documentation that supports their eligibility.
Deferments are typically broken down into qualifying categories:
• Unemployment. Borrowers receiving unemployment benefits or who are actively seeking and unable to find full-time work may qualify. This deferment is good for up to three years. However, under Trump’s One Big Beautiful Bill, borrowers will no longer be eligible for deferments based on unemployment for loans made after July 1, 2027.
• Economic Hardship. Individuals receiving merit-tested benefits like welfare, who work full-time but earn less than 150% of the poverty guidelines for their state of residence and family size, or who are serving in the Peace Corps may qualify. This deferment may be awarded for up to three years. Again, under Trump’s One Big Beautiful Bill, borrowers will no longer be eligible for deferments based on economic hardship for loans made after July 1, 2027.
• Military Service. Members of the U.S. military who are serving active duty may qualify. After a period of active duty service, there is a grace period of 13 months, during which borrowers may also qualify for federal student loan deferment.
• Cancer Treatment. Borrowers who are undergoing treatment for cancer may qualify. There is a grace period of six months following the end of treatment.
Student Loan Forbearance
There are two types of federal student loan forbearance: general and mandatory. Private lenders sometimes offer relief when you’re dealing with financial hardship, but they aren’t required to, so check your loan terms.
General forbearance is sometimes called discretionary forbearance. That means the servicer decides whether or not to grant your request. People can apply for general forbearance if they’re experiencing financial problems, medical expenses, or employment changes.
General forbearance is only available for certain student loan programs, and is granted for up to 12 months at a time. After the 12 months are up, you are able to reapply if you’re still experiencing difficulty.
Note that starting July 1, 2027, new student borrowers will have a nine-month cap in a 24-month period for student loan forbearance. Borrowers also will no longer be eligible for unemployment or economic hardship deferments and forbearances.
Mandatory forbearance means your servicer is required to grant it under certain circumstances. The Federal Student Aid website has a full list of criteria for mandatory forbearance. Reasons include:
• Medical residency or dental internship
• Participating in AmeriCorps
• Teachers who qualify for teacher student loan forgiveness
• National Guard duty
• Monthly student loan payments that are 20% or more of your gross income
If you’re pursuing federal student loan forgiveness, any period of forbearance generally does not count toward your forgiveness requirements.
The Takeaway
Should you unexpectedly need to drop out of school, you’ll still be responsible for paying back your student loans. If you’re able to work, you may want to enroll in an income-driven repayment plan — though keep in mind that these programs don’t always offer the lowest monthly payment possible.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
What happens to your student loans if you drop out of college?
If you drop out of college, your student loans will still need to be repaid. The grace period for federal loans typically lasts six months after you drop out, during which you are not required to make payments. Private loans may have different terms, so it’s important to check with your lender.
Can you still receive financial aid if you drop out of school?
Once you drop out, you will no longer be eligible to receive new financial aid. However, you may still have access to any remaining funds from the current academic year. It’s important to contact your school’s financial aid office to understand your specific situation and any potential refund of unused funds.
What is the grace period for federal student loans, and how does it work?
The grace period for federal student loans is usually six months after you drop out of school. During this time, you are not required to make payments on your loans, but interest may continue to accrue on certain types of loans, such as unsubsidized loans. After the grace period, you will need to start making regular payments.
SoFi Student Loan Refinance SoFi Loan Products
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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