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What happens if I get a student loan & then drop out?

Updated March 23, 2017

College dropouts may be worse off financially than students who never attempted college. The dropout rate at for-profit colleges is double the rate at not-for-profit colleges, according to NPR.org. After borrowing money and getting started with the payment of tuition, fees, purchase of books and relocation, a student who drops out may have to pay back the portion of any grants that are "unearned," as well as loans. Ideally, students would never drop out; realistically, dropouts are common.

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Contact the financial aid office at the university or college and ask how it handles tuition refunds. The handling of tuition by the school may determine the date you want to drop out, since just a few days can make a difference. Schools have freedom in handling tuition refunds, but must follow federal guidelines for handling federal aid refunds.

Immediate Effect

The date you notify the college or university of your intent to drop out controls the calculations for your Title IV funds. Title IV funds include unsubsidized or subsidised government loans like Stafford, Perkins or Direct PLUS loans, Pell Grants, Academic Competitiveness Grants, National SMART Grants and Supplemental Educational Opportunity Grants. The school calculates the percentage of days prior to drop out based on the number of days in the term. The college uses this percentage to calculate funds you "earned" and funds you must return.


The college or university may reduce the amount you owe for the semester based on the dropout date and recalculate your tuition so you only owe a percentage of the total. The university will calculate the "earned" portion of your Title IV funds based on the number of days you attended. Even grants are "earned" by attendance. If you attend at least 60 per cent of the term, you will not have to pay grant funds back. You will owe a percentage of a grant back to the government program if you drop out prior to 60 per cent. If you have accepted the loan funds, you owe the loan back on the schedule established by the contract you signed.

Long-Term Effect

You earn no college credits for the semester you dropped out, but the U.S. Department of Education subtracts the loans and grants from your eligibility remaining in the future. Loans not paid back immediately become due as scheduled, since you are no longer attending college. The schedule usually allows between six months and a year after you are no longer in attendance before you start regular monthly payments.

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About the Author

Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.

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