Do I Have To Payback My Student Loans If I Drop Out

Q: If I dropout of college before I graduate from my degree program, will I have to pay back the federal student loans I used for that program?

A: Yes, just because you do not graduate from college does not mean that your federal student loans will be forgiven, or that they do not need to be repaid. Sometimes this is a misconception borrowers of student loans have, but the fact is, student loans are practically just the same as any other type of loan product. For example, if an individual purchases a car on loan, they are responsible to pay back that auto loan, regardless of what happens to the car. The same holds true for both private and federal student loans.

With federal student loans, students will typically have a six month grace period from the time they graduate or quit school before they enter into the repayment period. However, grace period durations can vary for both federal student loans and private student loans, so it is important to check with your lender to verify when you will be responsible to start making payments on your student loans.

Here’s the deal: your student loans are just like any other loan. Think about it like this: if you take out a car loan, and the car gets totaled before you pay it off, the bank isn’t going to say, “Oh, no problem! Forget about paying us back!” They’re still going to want their money. Student loans work the same way. Just because you didn’t graduate or you dropped out doesn’t mean the federal government is going to cancel the debt. So, yeah, you’ve still got to pay them back.

The thing is, federal student loans don’t start asking for payments immediately when you drop out. You actually get some time before things get real. So, let’s dive into what happens next.

Grace Period: What Is It, and How Does It Help?

When you leave school, federal student loans typically offer you a grace period. This is essentially a time buffer where you won’t have to make any payments right away. But—and this is a big but—this grace period doesn’t last forever. It’s usually about six months for federal student loans. So, if you drop out, you’ll get that grace period (which is nice), but it’s not a “get out of jail free” card. Once that grace period ends, it’s game on—you’ll be expected to start paying back your loans.

Pro Tip: If you’re thinking about dropping out, don’t wait until the grace period ends to start planning. Set aside time to figure out your repayment plan and how you’re going to handle those monthly payments. Trust us, it’ll be less stressful if you get ahead of it.

The exact grace period depends on your loan type, so make sure to double-check with your loan servicer. Not all federal loans have the same rules, and private loans? Well, they’re a whole different ball game that we’ll get into later. But, if you’re rolling with federal loans, it’s nice to have a little breathing room to figure out your next steps.

What Happens After the Grace Period Ends?

Once your six-month grace period is up, you’ll enter the repayment phase, and that’s when the fun starts. You’ll get your repayment schedule, and those payments are due whether you’re working, going back to school, or chilling on the couch trying to figure out life. But here’s the thing: you have options. Federal loans offer a variety of repayment plans that can help make paying them back a bit more manageable.

Repayment Plans You Should Know About

• Standard Repayment Plan: This is your traditional 10-year plan, where you make equal payments every month until the loan is paid off. It’s simple, but may not be ideal if you’re in a tough spot financially.
• Income-Driven Repayment (IDR) Plans: If you’re struggling to make payments, you might qualify for an IDR plan, where your monthly payment is based on your income and family size. This is a big help for anyone who’s not pulling in a huge salary.
• Graduated Repayment Plan: This one starts with lower payments that gradually increase over time. It’s perfect for people who expect their income to rise as they get into their career.
• Extended Repayment Plan: If you need more time to pay off your loans (more than 10 years), this plan stretches out the repayment period, which means smaller monthly payments but more interest over time.

Make sure to weigh the pros and cons of each option, and think about your long-term financial goals. It might be tempting to pick the lowest monthly payment, but consider how long it will take to pay off your loan and how much you’ll end up paying in interest.

Pro Tip: If you’re really tight on cash, the Income-Driven Repayment plan might be your best bet. It’ll reduce your payments and make them more manageable based on your income. But just be aware, you’ll be paying off your loans longer, and you’ll end up paying more in interest in the long run.

Private Student Loans: A Different Story

Now, if you’ve got private student loans—whether from a bank, credit union, or a private lender—things are a little different. Private loans don’t offer the same grace period as federal loans, and they often have fewer repayment options. That means that the second you drop out or stop going to school, your lender might expect you to start paying right away.

If you’re unsure whether your loans are federal or private, don’t guess—take a minute to check. You don’t want any surprises, especially when it comes to handling repayment. Private loans also typically don’t offer income-driven repayment plans or deferment options, so you may be stuck with a fixed monthly payment. If you’re struggling, reach out to your private lender—sometimes they can offer forbearance or temporary relief, but it’s not guaranteed.

Should You Consider Deferment or Forbearance?

If you drop out and find yourself in a tough financial situation, deferment or forbearance might be options worth looking into. These programs allow you to temporarily pause your student loan payments. However, they’re not a free pass. For example, with deferment, the government typically covers the interest on your subsidized loans, but if your loans are unsubsidized, you’re still on the hook for that interest. With forbearance, you’re responsible for paying the interest no matter what.

Pro Tip: Before you opt for deferment or forbearance, take a hard look at the long-term costs. Sure, it can help you in the short term, but your loan balance will grow if you’re not paying interest. Always consider how it’ll affect you down the road.

What If I Can’t Afford the Payments?

If you can’t afford the payments after you drop out, don’t panic. There are ways to handle it, but ignoring the issue isn’t one of them. Federal student loans have options that private loans just don’t offer, like income-driven repayment or even loan forgiveness programs (under specific conditions). If your financial situation changes or you get back into school, you might be able to pause payments or adjust your plan. Just make sure you communicate with your loan servicer—it’s way better to be proactive than to deal with the consequences later on.

So, will you still have to pay back your federal student loans if you drop out of college? The answer is simple: yes. But you’ve got options! Even though you won’t get off the hook just because you didn’t finish your degree, there’s plenty of room for flexibility in repayment, including different plans and options like deferment and forbearance. Just be sure to take action before things get messy—because ignoring the issue won’t make it go away. Reach out to your loan servicer and explore all your options so you can make the best decision for your financial future. And remember, student loans are a marathon, not a sprint, so make sure you’re set up for success.