Student Loans and College Dropouts

More than half of college students use student loans to fund their educations. Twenty percent of these borrowers will drop out before receiving their degrees. This can create a serious financial hardship for the students, as, without degrees, they have lower earning potentials, but they still have the student loan debts to repay. There are many reasons students cannot complete school, but students must understand the consequences before withdrawing from their classes.

Dropping Out Mid-Term

If a student drops out during a semester, his loans may be canceled. Every school has a date several weeks into the semester on which instructors report the attendance of the student. This is to prevent students from withdrawing early but keeping the loan funds. If you stop attending classes before the drop date, your school will cancel the student loan, and the funds won't be dispersed. If this happens, you will immediately owe the cost of tuition, fees and books. If you cannot pay, then your bill will go to a collection agency, and this will seriously impact your credit. So, it is important to finish a semester if you have already signed for a student loan.

Dropping Out before Graduation

If a student drops out before obtaining his degree, he will still be responsible for the student loan debt. Most lenders offer a six-month grace period before the payments begin. Often a student will drop out of college because of financial difficulty or the need to work more hours. Student loan debt can be a huge additional burden. With high loan amounts and high interest rates, payments can be quite large. Without completing college and earning degrees, individuals can find it especially difficult to repay these loans.

Defaulting on a Student Loan

If a student is unable to repay the loans after dropping out, he might end up defaulting on the loan. Defaulting on federal loans is detrimental to the student. If you default on a federal student loan, you will not be able to get a federal job in the future. Any federal benefits you receive can be taken. This includes disability and Social Security payments. Your federal income tax refund can be taken. It can be intercepted before you ever receive it and applied to your loans. The federal government can also garnish your wages, which could cause serious financial hardship to you. The lenders can sue you for repayment. Student loans have no statute of limitations. The government can sue indefinitely to receive these funds. Student loans cannot be discharged in a bankruptcy either, so if you are in financial hardship and need to file for bankruptcy, you still will need to repay the student loans.

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