How to Pay Off Student Loans After You Drop Out

Quick Answer

Dropping out of college could potentially limit your income opportunities, but there are still plenty of ways to tackle your student loan debt without a degree.

College dropout contemplating paying off her loans and enjoying her time at a coffee shop.

There are several valid reasons for college students to drop out or withdraw before completing their degree. But depending on the circumstances of your decision, you may need to repay some of the student loans you received for that term, and you'll also need to face regular student loan payments.

Dropping out of college can significantly affect your potential earnings, with dropouts earning 35% less than graduates, according to educational research firm ThinkImpact. As a result, it's important to plan how you want to approach your student loan debt. Here are some steps you can take.

1. Know What Happens to Student Loans After Dropping Out

When you leave school or fall below half-time enrollment, federal and private student loans typically offer a grace period of six months―some private lenders may offer up to nine months―during which you don't have to make any monthly payments.

But depending on when you drop out, you may need to repay a portion of your loans within 45 days. According to the Department of Education, federal financial aid for a particular academic term is earned once you complete 60% of the term.

If you drop out before the 60% mark, you may be required to return a portion of the aid you received for the term, including loans and grants, within 45 days of leaving school. Contact your school's financial aid office to learn more about how this rule may impact you.

2. Consider an Income-Driven Repayment Plan

If you have federal student loans and you're concerned about being able to make your monthly payments, consider an income-driven repayment plan.

The Department of Education offers four different repayment plans, which can reduce your monthly payment to between 10% and 20% of your discretionary income. These plans also extend your repayment term to 20 or 25 years, after which any remaining balance is forgiven.

Income-driven repayment plans can potentially cost you more in the long run, and your balance may even grow over time if your payment isn't high enough to cover the accruing interest. But if you need relief right now, you will have the chance to revert back to the standard repayment plan later.

Unfortunately, private lenders typically don't offer income-driven repayment plans, so you'll need to seek other relief options.

3. Ask About Forbearance Options

Student loan forbearance allows you to pause your monthly payments for a time. With federal loans, for instance, you may be able to get forbearance for up to 12 months at a time and up to three years in total—private lenders typically offer shorter forbearance periods.

Forbearance may not be a good solution for long-term relief, but it can offer you the chance to figure out your financial situation and prepare yourself for your required monthly payments.

4. Research Income Opportunities

While you may not be able to earn as much without a degree, take some time to research job opportunities in your area to make enough to cover your necessary expenses, including your student loan payments.

Utilize job listing websites like Indeed, and SimplyHired to learn more about jobs you may be interested in and qualified for. You may even consider a public service job with a government agency or not-for-profit organization, which can make it possible to get your loans forgiven after 10 years through the Public Service Loan Forgiveness program.

5. Think About Returning to School

Depending on your situation, returning to school could offer some relief, as your student loans will re-enter deferment status once you're enrolled again on at least a half-time basis.

Returning to school to obtain a degree can also improve your chances of getting a higher-paying job, making it easier to tackle your student loans after you graduate.

If you dropped out due to the cost of college, consider transferring to a less expensive school. If you're in your first year or two, attending a community college can be a cost-effective way to get your general education courses out of the way before moving to a four-year university to complete your undergraduate degree.

6. Seek Counseling

If you're unsure of how to manage your student loan debt, consider seeking professional advice. Student loan counselors with a nonprofit credit counseling agency can provide you with inexpensive or even free guidance on how to approach your student loans and explore ways to stay on track with your repayment.

You can find nonprofit credit counseling agencies with the National Foundation for Credit Counseling or the Financial Counseling Association of America.

Safeguard Your Credit As You Consider Your Options

Paying back student loans after dropping out can feel like a daunting task, but as you research and consider your options, make it a priority to avoid missing payments. If you miss a student loan payment by 30 days or more, it could damage your credit score significantly, making it harder to qualify for other affordable financing options.

With Experian's free credit monitoring service, you can check your FICO® Score and Experian credit report and get real-time alerts when changes are made to your report. This tool can make it easier to understand how your actions impact your credit profile and to spot and address potential issues as they come up.