You have to repay most of your student loans, even if you decide not to finish school. But knowing what happens can help you prepare for repayments. And there are steps you can take to make sure that process goes smoothly.
What to expect when you drop out of school
From completing exit counseling to entering your grace period, here’s what you can expect to happen with your student loans after leaving school.
You have to complete exit counseling
The first step you need to take when you drop out is to complete exit counseling. Exit counseling is an informational session that everyone with a federal loan is legally required to take. It’s meant to make sure you understand how your loans work, your repayment options and other resources available to you.
You can do it online through your Federal Student Aid (FSA) account, though some schools offer in-person sessions. There’s no deadline to complete exit counseling, but you might not be able to access your school records until you do.
Got student loans coming in for the next semester? Or following year? You might be able to return the money without having to pay interest. You can cancel federal loans 120 days after your school receives the funds. Some private student loan providers also allow you to cancel your loans up to 30 days after they’re disbursed.
Contact your financial aid office if you just received loans or have money coming your way from a lender. Since schools typically receive the funds directly, you have to go through their financial aid office to cancel them. If you received the money yourself, contact your lender to learn more about its return policy.
You enter the grace period
Most student loans come with a six-month grace period before your repayments kick in after you drop out. If you have private loans, you might have as long as nine months — or no grace period at all.
Grace periods are designed to let you get your finances together after you graduate before worrying about repayments. But unless you have federal Direct Subsidized Loans, interest adds up during that period. Once your repayments begin, your servicer — the company that handles your loans while you pay them back — adds that accrued interest to the loan balance. In short, you pay more if you wait to start making repayments.
Still in school but thinking of leaving?
Dropping out of college shouldn’t be taken lightly. But sometimes now just isn’t the right time to be in school. Take these steps before you make a decision:
Talk to your adviser. Your academic adviser can give you an idea of what to expect if you decide to leave the program and alternatives to dropping out.
Consider cutting back on classes. If you’re overstressed, lightening your workload can make school easier to manage. But keep in mind that dropping below half-time enrollment triggers your student loan grace period.
Finish the semester, if possible. Withdrawing from courses you already started might make it harder to get into another program if you decide to return to school. Plus, you’ll have to repeat the work you already did.
Get on top of repayments and save on your short- and long-term costs with these steps:
1. Start repayments ASAP
The sooner you begin repayments, the more you save on interest. Reach out to your servicer to set up your account as soon as you can after leaving school. Don’t know who your servicer is? You can find out by logging into the FSA account you set up to apply for federal student loans — or contacting your private lender.
2. Choose the best federal repayment plan for your income
Be realistic about your salary when picking your repayment plan for your federal loans. If you’re in a low-paying job, you might want to pick one of the following types of plans:
Income-driven repayment plan. Federal loans come with the option to make repayments based on the amount you make each month — which could lead to repayments as low as $0.
Extended Repayment Plan. This plan allows you to stretch out your term to as long as 25 years, meaning low monthly repayments. Pick the Graduated Extended option to get repayments that start even lower and increase over time.
Graduate Repayment Plan. This plan offers repayments that increase every two years over a 10-year term. Or if you consolidate your loans with a Direct Consolidation Loan, the term can last as long as 30 years.
If you have private student loans, you typically only have the option of making standard repayments. This means you’re on the hook for making full monthly repayments on both the principal and interest. If you’re struggling to afford this, you might want to look into your deferment or forbearance options.
Around 65% of jobs require a postsecondary degree, according to a study by Georgetown University — and that number is expected to rise. This means your options are limited when you enter the job market. If you’re struggling with your finances, consider taking on a side gig. Even selling your photos online could be the difference between repaying and becoming delinquent on your loan.
4. Rely on the skills you developed in school
There’s a reason people who have some college under their belts often make more money than their peers who started working right out of high school. College can teach you skills that employers want to see — like critical thinking and strong communication skills.
5. Look into refinancing
Got private student loans with a servicer that won’t budge on repayments? Land a high-paying job and think you can qualify for a better deal? Taking out a loan with another provider to pay off your current debt is another way to switch up your repayment plan, change your servicer and potentially get a lower APR.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
If you can’t afford your student loan repayments, your loans become delinquent and can go into default. This can damage your credit for years and affect your ability to collect your tax refund or even receive your full paycheck.
But there are steps you can take to avoid defaulting:
Apply for hardship forbearance. Most lenders allow you to pause repayments temporarily when you can’t afford them. How long hardship forbearance lasts depends on your lender.
Sign up for income-driven repayments. You can switch to an income-driven repayment plan at any time when you’re paying off your federal loans.
Change your loan term. Getting a longer loan term can give you lower monthly repayments, though you pay more in the long run.
Talk to your servicer. None of these options work for you? Call your servicer and explain the situation. They might be willing to work with you to come up with a new repayment plan that better fits your budget.
Dropping out of school triggers repayments on your student loans, which typically begin after a six-month grace period. But choosing a federal repayment plan that works with your budget or looking into your forbearance options can help you avoid defaulting while you come up with your next move.
It depends on when and how you withdraw from the semester. Typically, your financial aid for that semester and any subsequent semesters is canceled — making it difficult for you to return to school.
You also might have difficulty meeting your school’s satisfactory academic progress requirements, which makes you ineligible for federal aid for that degree program.
Talk to your school’s financial aid office and your adviser before you withdraw.
It depends on the program and type of aid. You need to pay back student loans, regardless of whether you complete the program. Some scholarships, grants and fellowships might also ask for repayment if you don’t complete the program. Contact your financial aid office for more details.
Unless you return the funds right away, you can’t get out of student loans without paying except in special circumstances — like attending a school that shut down or illegally offered you federal funding.
But you can apply for student loan forgiveness if you have federal loans or sign up for a loan repayment assistance program (LRAP). Not all forgiveness programs and LRAPs forgive the full balance of student loans, however.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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