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If you withdraw from your college courses or drop below half-time enrollment, payments on your student loans will begin shortly thereafter.
Before you make the decision to drop out, it's important to understand how your student loans will be impacted, as well as your eligibility for financial aid in the future if you plan to return to school.
What Happens to Student Loans if You Withdraw?
If you have federal student loans, monthly payments are deferred until you graduate, leave school or if your course load drops below half-time enrollment. After that, you'll get a six-month grace period before you need to start making monthly payments on your loans.
So, whether you drop out of school entirely or withdraw from a class that leaves you with fewer than six credits, expect to start making monthly payments within six months unless you can qualify for additional deferment or forbearance.
With private student loans, most lenders have a similar policy, though some lenders offer a nine-month grace period instead of six months. However, some lenders may also allow you to make interest-only or low fixed monthly payments while you're in school. If you're on one of these plans, you'll switch to full monthly payments once your grace period ends.
If you're thinking about withdrawing from a class or dropping out of college, speak with someone in your school's financial aid department to understand how the decision will impact your situation and which steps you can take.
How Dropping Out Affects Financial Aid
If you're planning to go part-time with school or you're dropping out with the intent to return to school in the future, your student loans are only one factor to consider. You'll also need to think about how your decision will impact your eligibility for financial aid.
Federal Student Aid
To qualify for federal student loans, grants and the work-study program, students are required to be enrolled at least half-time and maintain satisfactory academic progress.
Whether you drop out entirely or fall below half-time status through a withdrawal, you may lose your aid eligibility for the current academic term. If you've already received federal aid, you may need to return some or all of it.
Additionally, withdrawing from one or more of your classes after the add/drop deadline for your school could affect your academic progress and make it difficult for you to qualify for federal aid in the future. If you're withdrawing due to extenuating circumstances, though, you may be able to explain the situation and regain your eligibility.
Private Student Loans
If you drop out or fall below half-time enrollment, expect to start making payments within six to nine months. Additionally, your loan options in the future may be limited until you're back to half- or full-time status.
While some private lenders are willing to work with part-time students, most require students to be enrolled at least half-time to qualify for new loans.
Grants and Scholarships
Each school has its own terms for scholarships and grants, so contact your school's financial aid office to learn more about how dropping out or falling below half-time enrollment could affect your eligibility.
If you're thinking about applying for private scholarships and grants through websites like Scholarships.com and Fastweb, read the fine print to understand how withdrawing could impact you.
How to Repay Student Loans if You Drop Out
If you're dropping out or falling below half-time enrollment, find out what your monthly payment would be and whether you can afford it. If you can, start making regular payments once your grace period ends. If you return to half- or full-time enrollment in the future, you can contact your loan servicer at that point and request another deferment of your payments.
However, if you don't think you'll be able to afford your monthly payments, here are some potential options to consider.
Income-Driven Repayment
If you have federal loans, you may be able to get on one of four income-driven repayment plans. These plans reduce your monthly payment to 10% to 20% of your discretionary income and extend your repayment term to 20 or 25 years.
You'll need to recertify your income every year, which means your payment can fluctuate over time, but it can provide you with immediate relief. What's more, if you have a remaining balance after your term ends, it'll be forgiven.
Deferment or Forbearance
The U.S. Department of Education offers deferment and forbearance to borrowers experiencing financial hardship and other qualifying circumstances. Private lenders also typically offer forbearance, though their criteria for who qualifies and the length of relief can vary by lender.
Consolidation
If you have federal loans, you can use the direct loan consolidation program to consolidate them into one loan and extend your repayment term to up to 30 years. With a longer repayment term, you'll get a lower monthly payment, albeit with higher total interest charges.
Just keep in mind that you can't go back to a standard 10-year repayment plan later on unless you consolidate again.
Increase Your Income
If you have private loans with little or no relief options or you don't want to commit to an income-driven repayment plan or a consolidation loan, consider looking for opportunities to increase your income.
Options may include searching for a better job, asking for a pay raise, working overtime, starting a side hustle and more.
Avoid Missing Payments to Safeguard Your Credit
If dropping out or withdrawing from a course starts your student loan grace period, it's crucial to take steps to avoid missing any of your student loan payments once they begin. If you miss a payment by 30 days or more, it can damage your credit score significantly.
In addition to setting up monthly payments or seeking relief, keep an eye on your credit score using Experian's free credit monitoring service and address potential issues as they arise.