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What Is the College Dropout Debt Crisis?

What Is the College Dropout Debt Crisis?
Jacqueline DeMarco
Jacqueline DeMarcoUpdated August 3, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Going to college isn’t the right fit for everyone, and that’s okay. Where things become problematic is when students enroll in college but fail to earn a degree. The college dropout crisis is a term used to refer to this situation and the issues it can trigger.While dropping out of college isn’t necessarily detrimental to someone’s life trajectory, the college dropout crisis typically refers to a specific dimension of this situation. Specifically, it’s when lower-income and middle-class students drop out of college and fail to find good jobs. This can leave them with tens of thousands in loans, but without the degree they need to make progress toward paying down those degrees. Want to learn more about the college dropout crisis? Keep reading to learn:
  • What is the college debt crisis?
  • What are the downsides of dropping out?
  • What are alternatives to dropping out of college?
  • How can dropouts pay off their debt?

Understanding the College Dropout Debt Crisis

As briefly noted before, the college dropout crisis refers to student loan borrowers who drop out of college and then fail to find jobs that make a good salary. Then they are left wondering how to pay off student loans. In recent years, the college dropout crisis has been less of an issue due to the fact that student loan payments were paused temporarily during the coronavirus pandemic. The deadline has been set for Autumn 2023 for payments to resume.Here’s a closer look at some facets of this scenario:

Who Is Most Affected?

Low-income students are often the group most affected by the college dropout crisis. Not only can affording the costs of college be challenging, but dropping out (which can affect career and income opportunities) can make it even harder to pay back money they borrowed for school. Many low-income students struggled during the pandemic because they couldn’t afford good enough WiFi to take online college classes, and that issue of affordability persists. These individuals may similarly grapple with repaying loans if they discontinue their education.

What Are the Effects of the Dropout Crisis?

The main impact of the college dropout crisis is the student loan debt crisis. This means that, after dropping out, students can have tens of thousands in loans but not end up with a degree after all the time and money spent. As a result, a lack of a college degree can make it hard to find a higher-paying job, and these borrowers can struggle to pay off their student loan debt. 

College Dropout Rates Over Time

To better understand how the college dropout crisis has been affecting students, take a closer look at this chart. It outlines the 12-month dropout rate for college students among full-term first-time undergraduate students during the fall term. The data is from the National Center for Education Data Statistics. As you will see, the rate has been significant and fairly constant:12-Month Dropout Rates Among Fall-Term Full-Time First-Time Undergraduates
  • 2015 - 2016: 24.7%
  • 2016 - 2017: 24.5%
  • 2017 - 2018: 24.4%
  • 2018 - 2019: 23.8%
  • 2019 - 2020: 24.1%

Downsides of Dropping Out of College

There’s no right or wrong answer when it comes to choosing whether or not to go to college. However, dropping out of college does come with some disadvantages worth being aware of, such as:
  • It can be difficult to pay off debt
  • Many desirable jobs require degrees
  • Unemployment rates can be higher
  • People often find it challenging to return to school after dropping out.

Alternatives to Dropping Out

If someone is considering dropping out, they may be able to pursue one of these alternatives instead. These options can help make finishing their goal of getting a college degree more attainable. 

Taking a Year Off

There are many reasons why students drop out. If that difficulty is temporary (such as needing to care for an ill family member for a few months), then students can consider taking a semester or year off instead of dropping out. That way, they can maintain their good status with their college or university and hopefully stay on track to earn their degree. 

Talking to Your Advisor/Counselor

Before making any final decisions about dropping out, it can be helpful to speak with a counselor or an advisor at the college the student is enrolled in. If they’re struggling in school, a college counselor may be able to provide them with the tools or resources they need to make college work for them. Many colleges have resources to help support students struggling with issues like mental health, test anxiety, and academic demands. There are also counselors in the financial aid office who can help students learn more about what their financial aid options are if they’re considering dropping out due to money concerns.

Going Part-Time

Some students may struggle to balance the demands of school with other areas of their life, like caring for family members or working. If they can’t keep up with the demands of being a full-time student, they can consider switching to part-time enrollment. This can help free up some time in their schedule and may relieve some of the stress. Recommended: What Is the Average Student Loan Debt?

Paying off Student Debt as a Dropout

After dropping out of school, students who borrowed money to help cover their education costs need to understand how they can make progress on paying off their student loan debt. 

When Do Payments Start Being Due?

When someone’s student loan payments start being due depends on whether or not they have federal student loans or private student loans. Private student loan lenders set their own rules regarding repayment, so this can vary greatly by lender. Some private lenders require payments to be made while the borrower is still in school. Others give students a grace period after they graduate, so they have time to find a job before they start making payments.When federal loan payments start being due depends on the type of student loan someone has. As soon as someone leaves school, graduates, or drops below half-time enrollment, they start the repayment process. When their first payment is due varies by federal loan type:
  • Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan: six months after leaving school
  • Perkins Loan: nine months after leaving school
The exception with federal loans is the PLUS loan. With this loan, type payments are due once the loan funds are fully dispersed unless the borrower is a graduate or professional student. In that case, their payments are automatically deferred while they are in school and then resume six months after finishing or leaving school. Worth noting: If you refinance a federal student loan to a private student loan, you will not be eligible for government forgiveness or income based repayment for the refinanced amount.Recommended: Pros and Cons of Student Loan Refinancing

Do Dropouts Qualify for Debt Forgiveness?

Student loan borrowers who drop out of college can qualify for federal student loan debt forgiveness programs. However, some of these programs can be hard to qualify for without a college degree as they often require working in a specific job. Borrowers who dropped out may want to look into the Public Service Loan Forgiveness program as it only requires working with a specific organization, not working in a certain role. 

Income-Driven Repayment Programs

It can be hard to afford student loan payments without a high-paying job, which is where income-driven repayment plans come in handy. College dropouts may want to apply for one if they have federal student loans, as these loan programs are designed to make monthly loan payments affordable by taking the borrower’s income and family size into account when determining how much they pay each month. 

The Takeaway

The college dropout crisis can cause a lot of challenges for the student loan borrowers it affects. Students need to think carefully before deciding to drop out of college. They can benefit from making a plan for how to repay their debt before they drop out of school. 

3 Student Loan Tips

  1. Once the pandemic-related pause on federal student loan payments ends, going back to making payments may be hard on budgets. One solution is to refinance to a lower interest rate, longer loan term, or both, depending on your situation. (The tradeoff is that you’ll be forfeiting federal benefits such as repayment programs.) Find and compare your student loan refinance options.
  2. Paying extra each month on your student loan can reduce the interest you pay and so lower your total loan cost over time. (The law prohibits prepayment penalties on federal or private student loans.)
  3. One pain-free way to pay down your student loan sooner: send in your tax refund to put against the principal balance. Since it’s money that has already been taken out of your pay, you won’t miss it.
Take control of your student loan debt today with Lantern.

Frequently Asked Questions

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About the Author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline DeMarco is a personal finance writer and editor based in Southern California. While she spends the bulk of her time writing about complex financial issues, she also tackles a variety of subjects ranging from food to fashion to travel. Her work can be found across dozens of publications such as Credit Karma, LendingTree, Northwestern Mutual, The Everygirl, and Apartment Therapy.
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