Will I Still Get My Student Loan if I Drop Out?
Understand the financial impact on your student loans if you withdraw from college, including current aid, existing debt, and future eligibility.
Deciding to withdraw from college can involve complex financial considerations, particularly concerning student loans. Understanding these effects is important. This decision can impact not only any current loan disbursements but also your existing loan obligations and your ability to receive aid if you choose to return to higher education in the future.
Impact on Current Loan Disbursements
When a student withdraws from all courses, the financial aid for that academic period is subject to review. This review determines the portion of aid the student “earned” based on their attendance during the enrollment period. Federal regulations assume that students earn their financial aid in proportion to the time they are enrolled, resulting in a pro-rata reduction of aid.
Scheduled disbursements of federal student aid for the current term are canceled upon withdrawal. The “Return of Title IV Funds” (R2T4) rule applies if a student withdraws before completing 60% of the enrollment period. This rule requires schools to calculate how much federal aid a student has earned and how much, if any, must be returned to the federal government. The calculation often involves determining the percentage of the payment period completed by dividing the number of calendar days attended by the total days in the period.
If the amount of federal aid disbursed exceeds the amount earned, the unearned portion must be returned. The responsibility for returning these funds can fall on the school, the student, or both, depending on the specific circumstances. For example, if a student never begins attendance in any registered courses, all disbursed financial aid for that semester must be canceled, making the student responsible for paying any institutional charges and repaying refunds received. The timing of the withdrawal significantly influences the amount of aid that must be returned, with earlier withdrawals leading to a larger portion of aid being unearned.
What Happens to Existing Student Loans
For federal student loans, withdrawing from school triggers the start of a grace period. This period is a set amount of time after you leave school or drop below half-time enrollment before you must begin making payments. For most federal student loans, this grace period is six months.
Once the grace period ends, your repayment obligations begin. You will interact with your loan servicer, a company assigned by the Department of Education to manage your federal student loans. Loan servicers are responsible for processing payments, providing information about repayment plans, and assisting with options like deferment or forbearance if you encounter financial difficulties. You can find out who your federal loan servicer is by visiting the Federal Student Aid website.
Failing to make payments once repayment begins can lead to consequences. Your loan becomes delinquent the first day after a missed payment. If payments are not made for 90 days or more, the delinquency is reported to national credit bureaus.
Continued non-payment can lead to default, which for most federal student loans occurs after 270 days of missed payments. Defaulting can result in the entire unpaid balance and interest becoming immediately due. Consequences of default also include wage garnishment and the withholding of tax refunds or federal benefit payments.
Navigating Withdrawal and Future Aid Eligibility
When considering withdrawing from school, distinguishing between an “official” and “unofficial” withdrawal is important. An official withdrawal occurs when a student formally completes the withdrawal process through the school’s designated offices. An unofficial withdrawal happens when a student simply stops attending classes without notifying the school, often resulting in failing grades. In cases of unofficial withdrawal where a last date of attendance cannot be determined, the school may use the midpoint of the payment period as the withdrawal date for federal aid calculations.
You should communicate directly with your financial aid office before initiating any withdrawal. This proactive step allows you to understand the specific financial implications, including potential aid repayment obligations and how your withdrawal date will be determined.
Dropping out can also negatively impact your future eligibility for federal student aid through Satisfactory Academic Progress (SAP) requirements. SAP refers to the academic standards students must meet to remain eligible for federal financial aid, measured by a minimum grade point average (GPA), a certain course completion rate, and completing the program within a maximum timeframe. Withdrawing from courses can lower your completion rate and potentially affect your GPA, leading to a failure to meet SAP standards.
Failing to meet SAP can lead to a loss of future federal student aid eligibility. While some schools may offer a warning period or an appeal process if you fail to meet SAP, continued non-compliance will result in the suspension of federal aid. Separately, defaulting on existing federal student loans will also prevent a student from receiving any additional federal student aid, including grants and new loans, until the default is resolved. To regain eligibility after default, options like loan rehabilitation or consolidation are available.