What happens to a student loan if you drop out?

Taking a break from college? Then pay attention to student loans, as lenders will be paying attention to borrowers. (iStock)

Every wide-eyed college student hits campus with the goal of graduation, complete with a great academic and lifestyle collegiate experience. However, paying for college is a barrier many students run into — and leads many to leave school early.

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Approximately 30% of first-year collegians drop out after their first year of school, according to College Atlas. Additionally, 56% of students who start out at college will drop out within the following six years. Reasons vary for dropping out of college, but financial issues are at the top of the list. Just over 50% of collegians who do drop out do so because of financing issues, with the skyrocketing cost of college a big contributor, according to LendEDU.

“Borrowers shouldn’t feel alone if they are stressed about the prospect of dropping out of school,” said Rob Bertman, senior student loan advisor at Student Loan Planner, an online college financing platform. “We’ve had countless emails from students who have doubted their decisions and are curious about their path forward if they decide to drop out of college.”

Here's everything else you need to know about your student loans if you drop out of school.

What happens to my student loan if I drop out?

The main question that accompanies dropping out of school: What do I do about student loan debt? When calling it quits, pay close attention to student loans — as you're still expected to pay them back, though the timing may differ between private and federal student loans.

“When you drop out, you’ll have to start paying back your federal student loans after your grace period ends, which is usually about six months.”

If you're hoping to lower your loan payments and pay off student loans sooner, you may want to consider refinancing. Credible can walk you through the process and find repayment plans in one location. You can compare multiple loan lenders and see what rates you qualify for.


However, you're going to want to move quickly when it comes to paying down student loan debt. Experts strongly advise addressing remaining student loan issues immediately after leaving.

“After your time of student loan repayment grace, don't forget those loans,” said Eliza Nimmich, co-founder of Tutor the People, an online academic tutoring company. “If you just have guaranteed government loans, interest has been accruing since you first took out the loan.”

How to pay off student loans fast

The best path to student loan repayment is to find out where the loan stands, how much is owed, and strategizing how best to repay the loan as quickly as possible.

Take these steps to pay off student loans if you drop out:

1. Where does the loan stand? Start by finding out as much as possible about any student loans, especially if payments can’t be made yet. “Be sure to find out the student loan servicer,” Nimmich said. “Then, find out just how much is owed when payments come due and what specific loan interest rate.”

2. Start paying as much as possible, and as quickly as possible. “After leaving school, start setting money aside every week to make timely payments,” said David Adefeso, the founder of Pacific Capital and Sootchy, a startup focusing on helping families invest for college by simplifying 529 plans. “Your interest is accruing, and you want to limit the compounding cost of the interest as much as possible.”3. Consider refinancing. If, after dropping out and financial circumstances have changed, consider refinancing the student loan with a lower interest rate or possibly moving to an income-based repayment plan that bases payments on borrower income.

“Consult with the student loan services provider for the details – either one might be a good fit financially,” Adefeso said.

When refinancing, leverage an online loan selection tool like Credible to get prequalified student loan refinancing rates without impacting a student loan borrower’s credit score.


4. Put your loans on autopay. Student loan payers can save some money by setting up loan autopay with their bank and have the loan payment deducted automatically. “This usually decreases the loan interest rate by a quarter of a percentage point, and that can really add up, savings-wise,” Bertman said.

5. Talk to an expert before you pull the plug. If money is a problem, college students can get help with financing if they talk directly to their school.

“If a student is having trouble paying for college, the first stop should be the college's financial aid office,” said Jay S. Fleischman, an attorney at Shaev & Fleischman P.C. and founder of, a financial platform that helps college students with student loan issues. “They have resources available to help bridge the financial gap so a student can continue with their college education.”


Keep things positive

Financial experts also recommend that ex-college students stay upbeat during an admittedly tough period.

“Remember, dropping out of college and still having debt is not the end of the world,” Adefeso noted. “So many people work hard, learn skills online, and find good jobs that allow them to actually pay down their debt.”

“In fact, it's possible that the individual emerges from this situation in a better position than if he or she had accumulated more debt by finishing college,” he said.

If you're looking to lock a low student loan refinance rate, then utilize multi-lender marketplace Credible's free online tools. Credible can help you compare private lenders at once to determine if now is the right time to refinance, based on your loan type, loan amount, and more.


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Should you roll your student loans into your mortgage?

When you combine mortgage and student loans, there are some pitfalls. Learn about the risks as well as alternatives. (iStock)

For many Americans, the coronavirus has created unprecedented financial challenges, which may make repaying your loans feel like even more of a burden. If you're trying to make debt payoff easier or otherwise looking to cut corners during these troubled times, you may be considering combining multiple debts, including a mortgage and student loans.

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While it is possible to combine your mortgage and student loans into one big debt under certain circumstances, this isn't always the best option as there are some considerable risks and downsides. There are also some other alternatives for providing more flexibility in your budget

Is it smart to roll student loans into mortgage?

Usually, the process of combining your mortgage and student loans involves taking out a cash-out mortgage refinance loan and then using the proceeds to pay off your student debt. There are upsides and downsides to rolling student loans into a new mortgage.

It's up to you to decide if this is a smart move for you, given your current financial situation.

Pros of rolling student loan debt into a mortgage

  • You could end up with just one debt to pay off
  • You may be able to reduce interest rates on your student loans
  • It could lower your monthly payments
  • You can deduct the interest costs (mortgage interest is tax-deductible on loans up to $750,000)

Cons of rolling student loan debt into a mortgage

  • You risk losing student loan protections available with federal student loans
  • You put your house in jeopardy if you can’t pay off your loans
  • Your home may also not appraise for enough to pay off your loans, which would mean this isn’t an option for you at all
  • You could also make student loan payoff costlier, even if you drop your interest rate, as you may end up paying off the new mortgage over a much longer period of time.
  • If you don’t itemize on your taxes, you won’t be able to deduct mortgage interest and you’ll also lose the student loan interest deduction, which you don’t have to itemize to claim.


Other ways to pay off student loans

These downsides may outweigh any upsides — but there are other good options for freeing up cash during the pandemic to consider, including the following:

Refinance loans

Refinance loans could help you lower your mortgage rate, your student loan interest rate, or both. You can refinance your mortgage to take advantage of today's record-low rates or could refinance your student loans with a private loan refinancing lender to do the same.

If you can qualify for a student loan refinance at a lower rate than you're currently paying, there are often no downsides to refinancing. You can use Credible to compare student loan refinancing rates from multiple private lenders at once without affecting your credit score.


You can use an online student loan refinance calculator to get an idea of how you could change your monthly payment and total loan costs by refinancing your student debt.

Rates are near record lows right now, so by securing a refinance loan, you may be able to both reduce your total interest costs over the life of your loan and make your monthly payment much more affordable by slashing your interest rate.

Visit Credible to compare mortgage rates and terms to see what type of loan you can qualify for.


Debt consolidation loans

Debt consolidation loans can be used to consolidate multiple types of debt into one.

If you secure a student loan refinance loan, you can use it to pay off multiple existing student debts. You can also consolidate other types of debts as well. For example, you could use a personal loan to pay off other high-interest loans, including credit cards and medical debt.

You can visit Credible to view debt consolidation loan options and see if they'll save you money.


Balance transfer or 0% APR credit cards

A balance transfer credit card could also allow you to reduce the interest rate on some types of debt.

If you have other credit cards at high rates, you could transfer the balances on them to a card offering a 0% promotional APR. This would substantially reduce the costs of repayment during the promotional period since every payment would reduce the principal. It's also often possible to transfer the balance from multiple cards onto one new balance transfer card, thus simplifying repayment as well as making it more affordable.

Credible's online marketplace enables you to view multiple credit card options at once so visit today to see if this could help you to get some extra wiggle room in your budget.


If one of these other approaches will work for you, you can make getting through the pandemic easier by cutting your costs without putting your home on the line by combining your mortgage and student loans.

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Student loan payments are on hold — what to do with the extra cash

With student loan payments in forbearance, there are several ways to use that money instead. But you’ll want to explore the pros and cons of each option and make a decision that works for you.  (iStock)

Good news, student loan borrowers: President Trump signed an executive order that extends the hold on federal student loan payments until January 2021. Student loan payments were initially paused under the CARES Act until the end of September.

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While the Department of Education worried about student loan defaults and delinquencies (due to high unemployment), Trump extended student loan forbearance. As a result, roughly 35 million students get a break from paying federal student loans until the end of the year.

All that extra cash can really help, especially if you're struggling with other debt. And, while going on a spending spree may sound fun now, you may regret it in the long run. You can explore all of your student loan options by visiting online marketplace Credible today.

Here are a few other (better) ways you can spend the extra money:

1. Pay down credit card debt 

The Federal Reserve reports the typical monthly student loan payment is between $200 and $299. The average credit card balance among people in their 20s was nearly $2,800 in 2019 according to Experian data.

So, if you saved $250 each month from September through December 2020, and put that money toward paying down your credit card balances, you would be $1,000 less in debt. Of course, this only works if you don’t make additional purchases on your cards.

Explore your many credit card options by visiting Credible.


2. Pay down personal loan debt 

Paying down personal loan debt can take time. But the money you will save by delaying payments on your student loans just might be the motivation you need to get started.

If you're paying a higher interest rate on your personal loan, you may want to consider refinancing as interest rates are at an all-time low. Visit an online marketplace like Credible to explore your personal loan options.


Nishank Khanna, chief financial officer at Clarify Capital, says, “Using extra cash to make payments during this interest-free period can help you get ahead and save money over the life of your loan. Payments as low as $50 a month can make a huge difference because every dollar applied is going straight towards the principle.”

Keep in mind that paying off your personal loan early may cost you. Some lenders charge prepayment penalty fees, so you’ll want to balance the pros and cons to repaying your loan before it matures.

3. Pay down your mortgage 

Using cash reserves to pay down your mortgage can free up cash flow each month. By making more aggressive payments on your mortgage–like an extra $100 each month–you’ll also own your property outright much sooner.

You’ll lose the mortgage interest tax deduction. And, although you’ll still have equity in your home once you pay off your mortgage, you’ll have no available cash on hand.

According to Freddie Mac, mortgage rates have sunk to their lowest level in many years, so you may want to consider refinancing your current mortgage.

Finding the best mortgage refinance rates takes time. You'll need to compare rates from multiple lenders. Credible allows you to compare multiple lenders to ensure you meet your personal finance goals. Find out how much you could save on your loan amount by refinancing now.


Use an online mortgage calculator to determine your potential monthly payments.

4. Pay student loans anyway 

“Overall, students have a unique opportunity to pay down their student debt faster if they choose to make payments during the student loan suspension period,” says Kalicia Bateman, student loan and student debt expert at BestCompany.

But make no mistake, loan forbearance is not loan forgiveness and this is only a pause due to the coronavirus pandemic. If you can't make your payments or choose not to, your debt will be waiting for you when federal student loan suspension ends. If you continue to make payments on your student loans during forbearance, you won’t pay any new interest. Your payment won’t be any lower, but the 0% interest rate will save you money.

Even during this student loan forbearance period, it's still important to know your student loans' interest rate and terms. Use an online student loan calculator to determine your costs.

What you do with the extra cash you save during the pause in paying your student loans can positively or negatively impact your finances. It’s all up to you. You can pay down a credit card or personal loan debt, pay more every month on your mortgage, or continue to make your student loan payments during forbearance.

No matter what you do, consider all the pros and cons and explore all of your student loan options by visiting Credible today.

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