What Happens to My Student Loans if I Leave School?

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Benjamin Roussey

By Benjamin Roussey

May 9, 2020

Not all students who start college may complete it. You could drop out midway for a variety of reasons. But no matter why you are walking away without a degree, it does not relieve you from the legal obligation of repaying your student loans.

Can you get a grace period to pay back?

Student loans usually come with a grace period, which refers to the time period after the completion of your college during which you are not required to start your payments. This grace period is typically six months for both private and federal loans, but private loans do not have a preset regulation on this. 

The moment your enrollment with the college has ended, your grace period usually gets triggered. Therefore, if you leave midway and do not enroll for the next semester, your grace period will begin. However, remember that interest on your student loan will continue to accrue during the grace period (except if you have taken a federal subsidized loan).

Does it get harder to repay if leave without a degree?

This will entirely depend on your individual circumstances. If you left college because you found a lucrative job opportunity or you are launching a startup for which you found angel financing, you may have the cash flows to pay back your student debt comfortably. 

But on average, students who leave college without a degree may find it harder to find a job or obtain a pay that is at par with other job seekers who have a degree. If you are one of those who is unable to get a job that offers decent pay, it could be more difficult for you to repay your student loans.

Debt default will have adverse consequences 

One of the reasons you should carefully think before dropping out of college is that the clock will start ticking on your student loan repayments and there is no escape from it. If you start defaulting on payments, be prepared to face the consequences, ranging from a serious hit to your credit score to wage garnishment.

Student debt is rarely discharged in a bankruptcy

The law says that you cannot discharge student loan in a bankruptcy, except when it is determined that repaying the debt would pose “undue hardship” upon you and your dependents. “Undue hardship” has not been defined under the Bankruptcy Code, and the courts will make their own interpretation of it case by case.



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