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

What Happens to Student Loans When You Withdraw or Drop Out of College?
Chris Alexis
Chris AlexisUpdated August 10, 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.
Many people want to know what happens to student loans if you withdraw. The answer is: You will have to pay.Whether your college career ends with you possessing a degree or not, you still need to pay back what you borrow. It’s important to understand what the term “withdraw” means in the world of higher education and the impacts of that.Keep reading for important information about repaying student loans, loan forgiveness, and consequences of withdrawing from college.

What Withdrawing From College Means

It’s not just quitting completely. When you dip below half-time status (which means half of the expected full-time course load), lenders will consider you “withdrawn.” This will trigger your loans to enter the repayment phase.

Common Reasons for Withdrawing From College

The top reasons that students quit higher education before earning their degree are:  
  • Financial problems. If students can’t keep up with the steep price tags, including tuition and books, it may be difficult for them to continue.
  • Academic workload. The expectations for college students are well above those for high schoolers. Sometimes, it’s just too much for certain people.
  • No guidance. Navigating the world of college is no easy task. Adjusting to these changes can prove too much for some.
  • Studying the wrong thing. If a student picks a certain major due to parental pressure, or to follow their friends, or any other reason other than an authentic fit, they may drop out due to lack of connection in that area.
  • Mental health issues. Stress can lead to depression, burnout, or other difficult scenarios that can lead students to simply giving up on school.
So, what happens to student loans if I withdraw from school?” you ask. Let’s dig into the nuts and bolts of college dropout student loan debt to answer that question…

How Withdrawing Affects Financial Aid

If you withdraw before finishing a minimum of 60% of the loan period (about a single academic year), you may need to pony up some money. Timing will likely play a role in your tuition’s refund policy. This information was likely explained during the application process, when you submitted your FAFSA.Different loans and lenders also have different policies. For example, the consequences related to your federal loan may be different than that of a private lender. (Keep reading for more information on that.) Of course, there are other kinds of financial aid, like grants and scholarships. We will examine those next.

Do You Have to Repay Grants if You Withdraw?

You may have to repay some grants if you withdraw. It all depends on the type of grant. For example:
  • Pell Grants: The timing of the withdrawal is key. If 60% of the semester has not been completed, you will be expected to repay a portion. Once you’re past that 60% mark, you do not need to repay any part.
  • TEACH Grants: These are for those who intend to serve as full-time teachers at an elementary or secondary school serving low-income families.  Recipients must teach for four years at an eligible school. If this requirement isn’t met, the grant becomes an unsubsidized loan and will need to be repaid — interest included.
Other grants have different terms and conditions. The same thing is true with scholarships. If you withdraw from school, reach out to whoever awarded you the scholarship for specific answers.

Loans Impacted by Withdrawing

What happens to student loans if you withdraw? The type of loan you have will impact the consequences of withdrawing. Also, federal vs. private student loans have different timelines and other factors.

Private Student Loans

Private lenders have various guidelines when it comes to withdrawing. One example is RISLA, where your repayment obligations depend on what plan you select. Other private lenders may provide a six-month grace period before your first payment is due. However, you continue to accrue interest in the meantime. Speak with your lender.

Federal Student Loans

The U.S. Department of Education has said that federal student loan borrowers with direct subsidized or unsubsidized loans must begin making repayments six months after graduating or dropping below half-time enrollment. (Remember that dipping below that half-time mark constitutes withdrawing.) If you have a PLUS loan with the government, there is no grace period. However, a deferment may be possible.

Does Withdrawing Affect Your Eligibility for Possible Student Loan Forgiveness?

Some people believe there is no student loan forgiveness for dropouts. But that is not true. You can still apply to student loan forgiveness programs

How Do Grace Periods Work?

Grace periods are essentially “breathing room” before you need to begin repaying your loan. They can apply to anyone with federal loans who has completed school, dropped below half-time, or abandoned their education entirely. Your student loan servicer is required to provide you with the following information before the grace period expires:•   Your loan repayment schedule•   The date of your first payment•   The number of payments•   The frequency of payments•   The amount of each paymentIf you have direct unsubsidized or direct subsidized loans, that grace period is six months. (But be warned that interest keeps accruing for unsubsidized loans.) Federal Perkins loan (which expired in 2017) grace periods may be different.  On the private side, different loans and lenders have distinct terms and conditions. It’s important to speak with your lender.

Student Loan Repayment Options

As mentioned above, withdrawing from college doesn’t negate the loans you took out. One option is to consolidate your student loans into one single loan; this will give you less to pay each month.Some even consider hardship withdrawal for student loans. A hardship withdrawal is a removal of funds from a retirement plan to help pay for what the IRS terms "an immediate and heavy financial need." But there are several other options…

Student Loan Refinancing

Refinancing means a private lender pays off one or all your current loans and then gives you a new loan. It may have a different timeline and interest rate. There are student loan refinancing pros and cons.A lower interest rate means you’ll pay less over the life of the loan. New rates will depend on things like your credit score, how long you have to repay the loan, and whether you choose a fixed or variable rate.But refinancing also has its downsides. You will no longer be eligible for federal programs like income-driven repayment plans, Public Service Loan Forgiveness, and forbearance options for the amount that is refinanced.

Income-Driven Repayment (IDR) Plans

The U.S. Department of Education offers the following four IDR plans to help borrowers pay down their federal student loan debt:Private student loans are not eligible for any federal repayment options, including IDR plans. Depending on your income and family size, all four IDR plans may offer a lower monthly payment compared with the Standard Repayment Plan.All IDR plans can end with a borrower’s outstanding balance being forgiven at the end of the repayment period. Forgiveness may come after 20 or 25 years under any of the IDR plans, but forgiveness may come earlier for eligible SAVE Plan enrollees who had original principal balances of $12,000 or less.

Student Loan Grants

Another way to pay off your loans is grants. Search for ones relevant to your specific field. Examples include:
  • Doctors, Nurses, and Other Healthcare Professionals
  • Teachers
  • Lawyers
  • Veterinarians
  • Researchers
  • Corporate Loan Repayment Grants

Compare Student Loan Refinancing Rates

Refinancing is a potential way to repay loans if you withdraw from school. Remember, this means you will forfeit federal program benefits like income-driven repayment plans, Public Service Loan Forgiveness, and protections like forbearance options and federal deferment for the amount that is refinanced. Compare rates for refinanced student loans through Lantern by SoFi.

Frequently Asked Questions

Do you still have to pay back student loans if you withdraw from college?
What happens to your financial aid when you withdraw?
Is it better to withdraw or fail as far as student loans and financial aid are concerned?
Photo credit: iStock/RichLegg

About the Author

Chris Alexis

Chris Alexis

Chris Alexis has been putting pen to paper and fingertips to keyboard since his youth. He ultimately grew into an accomplished and award-winning writer who loves using the power of language to connect with audiences. He also strongly enjoys learning about who he is writing for so he can create something that will truly resonate with them. He has worked for a variety of companies, each of which have given him more experience and insight.
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