Did you leave school before earning your associate’s, bachelor’s, master’s, or graduate degree? If so, it’s important to understand your loan repayment and refinancing options. Figuring out what to do with the debt is critical to your financial health.
Here are a few important debt concepts to understand that are specific to people who dropped out of school. Specifically, can you refinance your student loans if you didn't graduate college? If not, what are the options?
Cancel Any Loans That You Don’t Need
Before you worry about refinancing, check if any of your loans are eligible for cancellation. Within 120 days of loan disbursements, you can return Federal money you borrowed and cancel the loan. Many times, you can get a full refund from your school if you drop out within a few days or weeks of the start of the semester.
If you can cancel a loan, you simply return the amount borrowed. You won’t owe the interest or fees associated with the loan. Speak to the financial aid office at your school to understand exactly what needs to happen for this to work.
Understand What You Owe, and When You Need to Pay It
Any loans that aren’t cancelled need to be repaid. This is true, even if you didn’t earn a degree. Both Federal and private student loans need to be repaid. After you drop out of school, add up what you owe. Check the National Student Loan Data System to understand what Federal loans you owe, and who is servicing the loans.
If you have a Federal student loan, you’ll have a six-month “grace period” before payments on your loan start. You can start to make payments before the end of the grace period if you choose. Plenty of people drop out of school because they have an opportunity to earn a decent income before graduation. If you’re someone who is earning a solid income, consider aggressively repaying the debt.
For private loans, you’ll have to work with the loan provider to learn about what you owe, the minimum payments, and when you have to start payments.
You Have Six Months to Choose a Repayment Plan
With a six-month grace period for Federal student loans, you should have six months to figure out a repayment plan for your student loans. The time from dropping below half-time status to when you start repayment is called a grace period. The grace period is the time you have to learn about your loans and select the best repayment option for you.
Even if you dropped out of school, you can put your loans on an income-driven repayment plan. These plans are ideal for people who are earning low or modest incomes and cannot afford to pay off their loans in 10 years or less. Need help deciding on a payment plan? LoanBuddy is a free site that can help you.
Private student loans are a different story. With these, your repayment period may start while you’re in school or right after you drop out. Check with the loan servicer to understand the exact terms.
You Can Still Qualify for PSLF
Another reason to consider a repayment plan for Federal student loans is that you may qualify for Public Service Loan Forgiveness (PSLF) even if you don’t have a college degree. When you make 120 qualifying payments while working an eligible job (for a non-profit or government organization), your loans may be forgiven through PSLF. You do not need a college degree to qualify for PSLF.
Don’t Refinance Right Away
Federal student loans often carry an interest rate of 6% or more, and in today’s marketplace you may find lower interest rates on private loans.
But it doesn’t always make sense to refinance them right away. If you have subsidized loans, you won’t owe interest on the loans during your six-month grace period, and if you return to school full-time, the Department of Education may start to pay for the interest on the loans again.
Refinancing to a private student loan means you’ll lose the flexibility of income-driven repayment plans and future deferment options which can come in handy if you return to school.
In general, you don’t want to refinance Federal student loans until you’re as certain as possible that you will not return to school and that you can afford payments on a private loan.
Let's Talk Student Loan Refinancing
Can you easily afford payments on your loan? Are you unlikely to return to school before your existing loans are paid off? If both are true, you may want to refinance your loan, but you're probably going to run into some problems.
When you refinance your loans, you are taking out a private student loan. The lender will consider your income and credit score when issuing the loan. The better your credit score, the less you can expect to pay on the loan. But, they also consider the school where you graduated.
When you refinance, be sure to compare rates and fees from at least three lenders before committing. You can compare rates from multiple lenders using sites like Credible. You can find all the best places to refinance your student loans here.
But, since you didn't graduate school, most lenders won't want to work with you - at least online lenders. There are some that will take certain certifications (such as nursing or physicians assistant) - such as Splash.
However, you'll likely have better luck going to a local credit union. We've seen some (albeit rare) success stories with borrowers who didn't graduate getting their loans refinanced at a local credit union.
As you can tell - refinancing your student loans if you didn't graduate is probably not the best option. Even if you want to do it, you'll likely have a lot of difficulty finding a lender to work with you. While it never hurts to shop around online, you'll likely find the best results at a local credit union that may refinance your loans.
Hannah is a wife, mom, and described personal finance geek. She excels with spreadsheets (and puns)! She regularly explores in-depth financial topics and enjoys looking at the latest tools and trends with money.