How Dropping Out of School Affects Student Loans

Dropping out of school can be stressful, especially if you have student loans. Knowing what will happen to your student loans if you leave school is crucial to making an informed decision about how to proceed. 

Enrollment requirements for federal and private student loans typically require at least half-time enrollment to qualify for loan deferment. We’ll explore these requirements and share what you need to know so you’re able to manage your student loans effectively. 

What happens to federal student loans if you withdraw from college?

If you withdraw from college or your enrollment falls below half-time, you must start repaying the amount you borrowed. In most cases, repayment begins six months after this occurs, but it can vary depending on the type of federal student loan.

You can expect to begin repaying your federal student loans after withdrawing from school as follows:

Type of loan	When repayment begins
Direct (Subsidized and Unsubsidized)	After a 6-month grace period
Parent PLUS	Immediately (6-month deferment period is available upon request)
Graduate or Professional PLUS	After a 6-month deferment period
Perkins	Generally after a 9-month grace period, but this could vary; check with your school

Your school will automatically notify the loan servicer assigned to your student loan when your enrollment falls below half-time. At this time, your loan servicer will set you up on a standard repayment plan. Contact your loan service to discuss your options if you want a different repayment plan.

You’ll get a student loan repayment schedule once your loan servicer sets up your repayment plan. It will include details such as the specific date your first payment is due, the amount of your monthly student loan payment, and the length of your repayment term. 

Also, keep in mind that interest continues to accrue for most federal student loans during the grace period. The amount you owe will continue to build, which could increase your monthly payment or the time it takes you to repay the loan. 

If you have questions or concerns about repaying your loan, contact your student loan servicer as soon as possible to discuss your available options. Make sure you don’t miss making your payments. Defaulting on your loans can have serious consequences. 

Our expert discusses the credit and budget effects of dropping out

Eric Kirste

CFP®

If you voluntarily drop out, have a budget prepared to afford the payment that will begin in about six months. It shouldn’t hurt your financial health much as long as you have planned for the payment. If you involuntarily drop out and can’t afford the extra cost of the monthly loan payments, look for another source to refinance or pay off that debt through other loan options. In both scenarios above, it shouldn’t hurt your credit score as long as you avoid late payments. The student loan will appear on your credit report, but it shouldn’t lower your credit score if you keep up with it and the lender or servicer doesn’t report any negative events.

What happens to private student loans when you drop out of college? 

Private student loan lenders may have unique policies regarding when repayment begins after leaving school. Some lenders require you to begin repaying your loans as soon as you get them. Others defer your payments while you’re in school and may offer a six-month grace period after you leave.

Check with your private student loan lender to ensure you understand when your payments will begin. Interest will generally accrue on your private student loan and be added to the balance, even if you’re not required to make payments. 

The sooner you start repaying your private student loan, the less it will cost you in the long run. As a best practice, ask your lender how interest accrues and when you need to start making payments before you get the loan. This will help you avoid surprises. 

Similar to federal student loans, some private lenders may require repayment as soon as your enrollment drops below half-time. So if you plan to reduce your course load, talk to your lender first to make sure you understand how it might affect your student loan repayment.

Our expert’s advice

Eric Kirste

CFP®

Several private lenders may be willing to refinance student loans even if you didn’t complete your degree. However, it will be important to maintain a good credit score and history. To refinance that loan into something more affordable, you’ll still need a good credit and income history to qualify. The goal is to look for other options to combine with other debt or spread out the payments over a longer period to make it more affordable.

What happens to student loans if you withdraw from a class?

Many student loans—federal and private—use the number of courses (or credit, semester, or quarter hours) you take each semester as the trigger for when repayment begins. You’ll usually need to begin repaying your loans after your enrollment drops below half-time. 

Lenders have enrollment requirements because student loans are intended for regular students pursuing eligible degree or certificate programs. Because the law requires at least half-time enrollment before federal loan repayment begins, many private lenders also require it.

Your school will track how many courses you take each academic term and provide a report with this information to your lender or loan servicer. The servicer will use the report to determine whether you need to start making payments on your student loan or if you’ve overborrowed.

If you accidentally overborrow on a federal student loan, you might not be eligible for additional funding until one of the following occurs:

1. You repay the excess student loan funds 
2. You sign a reaffirmation agreement saying you’ll repay the excess funds in accordance with the original promissory note you signed. (This second option only works if you haven’t yet reached the maximum student loan limit.) 

Withdrawing from a class may affect your student loans if it causes your enrollment to fall below half-time. Not only might you be required to start repaying your loans, but you might not be eligible for more funding until your enrollment increases to at least half-time, or you may need to repay the excess.

If you plan to withdraw from a class and are unsure how it will affect your student loan, contact your loan servicer or private student loan lender. By taking time to understand what might happen, you’ll be better prepared to make an informed decision and plan for the future.

What happens to your student loans if you re-enroll in college after dropping out? 

If you re-enroll in college at least half-time after dropping out, repayment on your federal student loans is often deferred automatically. You won’t need to make student loan payments, but interest will generally continue to accrue on the outstanding balance. 

You’ll need to fill out a FAFSA form when you re-enroll in college. Once you enroll as a regular student, your school will inform your federal student loan servicer. Your federal loan servicer will then process the paperwork required to defer your student loans. 

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Tip

Deferral on your federal student loans is usually automatic as soon as you re-enroll in school at least half-time. Contact your loan servicer to discuss your options if your loans are not automatically deferred.  

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You’re eligible for federal student loans if none of your current loans are in default. This is an important reason it’s essential to ensure you always repay your federal student loans as agreed. 

What will happen with your private student loans when you re-enroll in school will vary by lender. While some lenders may return your loan to in-school deferment, this isn’t always the case. You’ll need to contact your private lender to explore your options.