Nobody plans to drop out of college. When you show up on campus for your academic year, you likely plan to graduate in four years and use your degree to get a job. You may even have planned the whole thing step by step.
But then life happens. Whether it's a family emergency, deteriorating health, stress burnout, or just realizing that college is not the right choice, many people drop out of college every year. The problem is, your student loans won't go away just because you never graduated.
How should someone in this position deal with student loan repayment? Are there any special considerations that need to be taken into account? Here's what you need to know:
Choose an income-based repayment plan
When you have federal student loans, you are entitled to the same repayment options that are available to borrowers with a degree.
You may be currently on the standard 10 year repayment plan, which has the highest monthly payments and the lowest total interest. You have the option to switch to a cheaper option if you are struggling with these payments. Use the official repayment calculator to see which plan is the lowest paying for you.
If you choose an extended, earnings-based, or tiered repayment plan, you'll pay more overall interest than if you stick with the standard plan. Unless you are working towards a specific forgiveness program, revert to the standard plan as soon as you can afford it to minimize interest.
Refinancing of personal loans
Private student loans have fewer earnings-related repayment options than federal loans and rarely offer deferral or forbearance options. But you can refinance personal loans at a lower interest rate even if you get out.
There are some lenders who cater to borrowers with incomplete degrees.
These can be:
RISLA Student Loan Refinance
Discover the bank
To be a good candidate for a student loan refinance, you must have a good credit score and no recent bankruptcies or defaults on your credit report. You also need a low debt to income ratio, and some lenders may have income requirements.
Mark Kantrowitz, SavingforCollege.com's financial aid expert, said borrowers are unlikely to be good refinancing candidates immediately after college, as lenders typically require a minimum level of full-time employment.
If you recently got out, you may want to wait a year before trying to refinance personal loans. During this time, check your credit history through Mint, pay all your bills on time, avoid opening new loans or lines of credit, and pay your credit card bill in full each month.
Discover respite and indulgence
Once you leave school, you are entitled to a six-month grace period during which federal student loan payments are suspended. During this time, no interest will accrue if you have subsidized loans but if you have unsubsidized loans.
If you need more time after the grace period has expired, you can request a deferment or forbearance. Borrowers have to manually apply for the forbearance and forbearance and wait for it to be approved.
Procrastination and Forbearance are both federal programs that borrowers can use to avoid paying their student loans while keeping them up to date. The main difference between the two options is that there is no interest on your loan balance during the deferral, but rather during the forbearance. Because of this, it is more difficult to qualify for a moratorium.
Be careful if you put off or slacken your credit for long periods of time. The accrued interest is activated, which means it is added to the principal of your loan. This will increase your total monthly payments and may delay the schedule for paying off your debt.
Apply for public service loans
Public Service Loan Forgiveness (PSLF) is a program that encourages borrowers to choose a nonprofit or government job. In return, your remaining loan balance will be forgiven after 10 year payments, which do not have to be consecutive. It's even available to borrowers who dropped out and never graduated.
"PSLF is always an option because it is employer-dependent," said Joshua R. I. Cohen, student loan attorney.
PSLF is only available for federal loans and only for loans that are part of the direct loan program. If you have FFEL or Perkins loans, you will need to consolidate them under the direct consolidation program. Through this process, they are eligible for PSLF.
Be careful not to consolidate any loans that are already part of the direct loan program. If you've already made payments, consolidating credits will restart the clock on PSLF and you could lose funds on eligible payments that you've already made.
The employer you work for must also be an eligible nonprofit or government agency. Only full-time workers qualify for PSLF, excluding part-time workers and independent contractors.
To be eligible for PSLF, you should complete the certificate of employment form every year. This form will ask for your employer's contact information, employment status, and more.
Once you've submitted the form, you should receive a notification confirming your employer and the number of eligible payments you've made. If you do this every year, it will be easier if you seek forgiveness after 120 payments.
"It also gives borrowers the ability to dispute errors or under-counts long before they are eligible to lend, so they have plenty of time to resolve disputes," said Adam S. Minsky, student loan attorney.
Borrowers can save money while working towards PSLF by choosing an earnings-based repayment plan instead of the standard 10-year plan. You also don't owe any taxes on the amount awarded. It is therefore best to choose the cheapest monthly option.
Try to relieve your credit
If you were unable to graduate from college because the department you studied in was closed or your school committed fraud, you may be a good candidate for the full repayment of your student loans. If this has happened to you, contact a student loan attorney who can help you file a case.
Zina Kumok (109 posts)
Zina Kumok is a freelance writer who specializes in personal finance. As a former reporter, she has covered murder trials, the Final Four, and everything in between. It has been featured in Lifehacker, DailyWorth, and Time. Read how she repaid $ 28,000 in student loans at Conscious Coins in three years.