You want to better yourself; you want a higher paying job; you simply want to do something different. But then life hits you: you have a family emergency and can't finish school. Or maybe your current path of studying wasn't the right fit for you. Or even worse, maybe you got sick…
The sad truth is that these scenarios impact millions of students across the country, and I hear about it almost weekly. I had a reader who took out $20,000 in student loans to go to dental assistant school, but then had to drop out to take care of her sick mom. At some point in time she wants to go back to school and get her certificate, but that's not going to happen right now. What's worse – those student loan payments are still due each month.
So what's a person to do? What should you do if you didn't finish school but still owe your student loans? Here are the steps to go through.
If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
Are You Current Or In Default?
The first thing to figure out is if you're current on your student loans or if you're in default. Sadly, too many people who didn't graduate and have student loans fall into default before realizing they still owe their student loan debt.
If you're current, you can skip to the next section on picking the right repayment plan for your situation.
If you're in default (meaning you haven't paid your loans in about 6 months, are getting your wages garnished, or seeing your tax refunds taken), you need to get out of default first. There are a couple different options for getting out of student loan default. We break down the options here: How To Get Out Of Student Loan Default In 5 Easy Steps.
Once you're out of default, you can start making progress on your student loans.
Pick The Right Repayment Plan
The first step is to make sure that you're on the right repayment plan for your situation. After you leave school (regardless of the reason), you'll be defaulted into the standard 10-year repayment plan. This plan has equal monthly payments over 10 years. However, you wouldn't be reading this if you could afford that payment – so you need to change your repayment plan to something more affordable.
Most Federal loans allow borrowers to sign up for income-based repayment, which is a set of repayment plans that lowers your monthly payment based on your income. The goal is that you can afford your monthly payments by capping the amount at 10-15% of your monthly discretionary income.
It's very easy to change your repayment plan – you simply call your lender or login to StudentLoans.gov and choose Income Based Repayment on the left sidebar. This is also the number one way that borrowers fall into scams. Before you pay any company for help lowering your monthly payment, read this first.
The great thing about income-based repayment is that your payment amount could actually be $0 per month if you don't earn any income or are below your state's poverty line. If you left school to take care of yourself or a family member, and don't work, you can really benefit from this.
Remember: Deferments And Forbearance Only Last So Long
A lot of borrowers fall into this trap right after they leave school – they defer their loan payments or put their loans into forbearance to avoid paying, rather than changing their repayment plan – typically because they don't know.
However, deferments and forbearance only last so long, meanwhile the loan balance is growing and the situation isn't getting any better.
If you can't afford your monthly payment, don't defer then loan. Simply change your repayment plan.
Go Back And Finish School
This might not be an option right now, but going back and finishing school is a great choice. First, you should continue to work towards your goal of finishing school, even if you encounter roadblocks along the way.
Second, if you enroll is school at least half-time (remember this can be college or career-based school), your loans will go back into deferment. Yes, like I said above, deferments only last for so long, but finishing your education is a great reason to defer your student loan debt.
Get To Work (In Public Service If Possible)
Finally, if you just can't finish school, maybe you can swing going to work. Even better if you can find a job in public service (like early childhood education, emergency services, or even the military).
When you go back to work, you can earn money to pay back your loans. But if you take a job in public service, you can also get Public Service Loan Forgiveness, which will forgive your loans after 10 years. Even if you didn't finish school, this is a valid option for you.
Getting Professional Help
The best place to start with help is simply by calling your lender. These companies are paid by the government to help you with your student loan debt.
You can hire a third party to help you, but make sure you know what you're paying for. If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
If you don’t qualify, refinancing your student debt presents an alternate opportunity to save thousands. Credible enables you to fill out one form and look at personalized offers from multiple lenders in just 2 minutes. As a bonus, College Investor readers who refinance with Credible are eligible for a $200 bonus! Learn more here!
Share your story: what are you struggling with if you didn't finish school and have student loan debt?