The decision to attend college isn't an easy one—and neither is the decision to stop. Despite their best efforts (or as a result of disciplinary actions), the overall dropout rate for undergraduate college students is 40%. Beyond personal distress and professional derailment, dropping out can have immediate repercussions for an individual's tax status.
The Free Application for Federal Student Aid (FAFSA) is a form completed by current and prospective college students in the U.S to determine eligibility for student financial aid. Aid is usually granted in the form of a lump sum and is based upon the assumption that a student will complete the academic year in which they received the money. If you're thinking about dropping out, or are forced to do so, you need to be aware of the various expectations for repaying financial aid.
You Must Pay Back a Portion
For the 2020–21 academic year, the average annual prices for U.S. undergraduate tuition, fees, room, and board were estimated to be $25,864 per year for in-state students at public institutions, $43,721 per year for out-of-state students at public institutions, and $53,949 per year for all students at private institutions.
Students who drop out of college may be required to pay back a portion of the federal student aid they received to pay for their tuition, such as a Pell Grant or the Stafford Loan. The amount due may be as high as 50% of the aid that the Department of Education determines was not used for classes. State agencies that provided financial support may also require some type of repayment.
College Student Loans and Drop-Outs
Unfortunately, student loans are not discharged simply because the student is no longer attending college. Any portion of student loans that are retained by a parent or academic institutions until the point of departure will immediately become due, so begin researching repayment options as quickly as possible. You will need to educate yourself about this process, as exit counseling is usually reserved for graduates, and your case may be given less priority.
Try to pay more than the minimum amount due in order to draw down the balance faster. Chart these payments out in the form of a budget, and try to accurately calculate how long your payment schedule will take.
Without planning, former students can be unpleasantly surprised by how long it can take to pay back three or four semesters of college loans.
If any portion of your student loans is forgiven between Jan. 1, 2021, and Dec. 31, 2025, it will be tax-free thanks to a provision in The American Rescue Plan Act.
Scholarship and Grant Programs
If you received a number of scholarships or grants as part of your financial aid package, you will need to check the requirements for each of these very carefully. Many require the satisfactory completion of a degree program (or sufficient evidence of academic progress) in order to be forgiven. If you've chosen or been forced to drop out, you may be required to partially (or fully) repay these grant or scholarship funds.
Dropping out During ROTC
Army Reserve Officer Training Corps (ROTC) offers two-, three- and four-year scholarships, which pay full tuition and fees and include a separate allowance for books (as well as a monthly stipend of up to $5,000 a year). It's best to check with your specific military branch to determine if there are any financial obligations for scholarship students who drop out of the ROTC programs.
Generally, there is no obligation if the student quits before their sophomore year. When students quit school after the start of their sophomore year, they will be expected to pay back tuition expended to date, or immediately enlist and go into active military service.
In the case of a medical condition that precludes a student from being commissioned as an officer, the obligation might be erased.
Make Sure You Are Ready for College
It's important to ensure you're mentally and emotionally prepared for college before applying to schools or taking on any form of financial aid. Anyone considering dropping out should consider tutoring, reducing their class schedule, switching majors, or transferring to another college as potential alternatives.
Even completing the current semester may give you more options for taking a break from school, or demonstrating sufficient academic progress to reduce your debt obligations for paying back financial aid. Just like signing up for higher education, dropping out will have innumerable life-altering effects on your financial future.