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Financial Aid

What Dropping Out of College Means for Financial Aid

Updated Apr 21, 2021   |   5 mins read

While it’s often seen as a mark of shame, backing out of college might be the only course of action in some circumstances. Everyone’s situation will be different, but dropping out of college is never a decision taken lightly.

If you are thinking about dropping out of college, you should consider the impact it will have on financial aid – including student loans.

If you haven’t yet, take a moment to work out the details and find out the long-term damage this decision will have on your financial success.

On this page:

What Happens to Already-Paid Tuition If You Decide to Drop Out?

All schools have deadlines for dropping courses or dropping out of college altogether. If you are at all nervous about the upcoming year, keep these deadlines in mind. They determine if you will receive any of your college tuition back. If you need to leave, do so before these deadlines pass if possible.

If you drop out after these deadlines, you will lose your tuition entirely or partially depending on when you make the decision. The school’s regulations on tuition for dropouts might also not align with the federal government’s policies, and this can get extremely expensive for the student packing it in.

Depending on what date you drop out and your school’s policies, you might still have to pay full tuition but may not have access to your former financial assistance because you are no longer in school.

In short, dropping out can create a real financial headache for students.

What Happens to Your Student Loans If You Drop Out?

If you drop out (or drop below half-time), you will have a six-month grace period before you are required to start making payments on your federal student loans and possibly your private student loans.

The one exception for federal loans is if you drop out within 120 days of the loan being disbursed, you can cancel your loan meaning you won’t have to pay any accrued interest or fees.

If you have a federal student loan for the current year in school, you will be on the hook for the used portion of it. The portion is calculated by the percentage of semester attended; so if you attended 50 percent of the program, you still owe 50 percent of the student loan, even if you drop out.

If you definitely have to drop out, it’s smart to have a plan for dealing with your student loans. A LendEDU study found that 46.5 percent of dropouts are in default on their student loan debt.

Carefully plan your exit strategy, know how much you’ll owe, and make a plan to keep up on payments. You could consider income-driven repayment plans, deferment, or forbearance if you don’t think you’ll be able to afford your payments.

What Happens to Your Current Financial Aid?

If you drop out, do you have to repay other types of financial aid, like grants, scholarships, and any assistance you receive from the institution itself?

Often, you do. Read the fine print for any financial support you received to attend school in the first place.

Often, scholarships require the awardees to follow through with the entire program, which can be four years or more.

Many college dropouts have suddenly found themselves in financial chaos because they not only must pay off their student loans but also their scholarships.

Imagine having to pay monthly installments on a student loan with no degree to show for it. Then imagine also having to pay for a grant you’ve never used.

The Effect of Dropping out of College and Future Financial Aid

If you dropped out of school in the past but are not ready to take the plunge a second time, there are a few things to keep in mind. Students in default status on student loans from their first go around are likely not eligible for more student funding.

If you have only recently dropped out (for a semester or two) before jumping back in again, your financial aid could still be in jeopardy.

Speak with your school’s financial aid office to determine what your drop out means for your current and future status at the school. Find out if you will be able to reapply for financial aid, to start.

Every school also has different policies on readmission, so you should speak with your college about how long you have to wait before re-entry into your program.

For some schools, it’s as simple as applying for the next semester and filling out a form. For others, you have to wait at least five years and seek approval beforehand.

Is Dropping Out of College a Good Idea?

There is a reason some schools require all dropouts to go through loan exit counseling. Dropping out, while necessary in some extreme circumstances, is a tough decision all around. It can lead to debilitating loan and financial aid repayments with no career in sight.

Look for other options (online courses, part-time schooling, etc.) before opting out mid-semester. Speak with your loan servicer as well to paint a clear picture of how much money you’ll be responsible for at the end of the day.