High Cost of Dropping Out – If You Don’t Graduate, Student Loan Debt Hits Even Harder
March 11, 2013

A recent Harvard study “Pathways to Prosperity” showed that the US has the highest college dropout rate among industrialized nations. Among four year colleges, just 56% of students graduate within six years. At “top” colleges like Ivy Leagues, graduation rates are drastically higher at 90% or more. But for nearly half of college students, dropping out is a statistical likelihood. And ditching school is financially problematic for those students who borrowed to fund their education.

With the average student debt around $28,000, but in many cases much higher, reduced job prospects for graduates with no degree can make monthly student loan payments unmanageable. Among those who dropped out, here are the top reasons:

  • → 66% dropped out to support a family
  • → 57% dropped out to work and earn money
  • → 48% dropped out because they can’t afford college

Unemployment statistics show that job seekers without a degree are twice as likely to remain unemployed as those with a sheepskin. And while there’s always tales of entrepreneurs who made it without a degree – the Bill Gates of the world – there are far more stories of people who got partway through their degree, dropout and regret it for years to come.

With college costs nearly six times higher than in 1985 and student loan debt over a trillion dollars, it seems like dropping out is the worst idea. Jack Remondi, COO of lender Sallie Mae says of college dropouts, “They have the economic burden of the debt but they do not get the benefit of higher income and higher levels of employment that one gets with a college degree.”

So what’s the answer?

First, if you’re considering dropping out of college, think really hard before you do. If you’ve had a financial hiccup, a semester of part-time study may allow you to get onto your feet while staying enrolled. If there’s any way to avoid dropping out and stay in school, you should do it. You’ll be better off in the long run.

Second, cut costs in every way possible so that you borrow the minimum. If you do end up having no choice but to dropout, the less student loans you’ve accumulated, the better off you’ll be financially. If you’re living on campus, move back home or get a bargain apartment. Ditch the high cost meal plan and learn to love Ramen. Buy used textbooks or borrow them from friends who already had the course.

Third, minimize what you borrow. There are often more funds available to borrow than you need. It may be tempting to borrow above and beyond the cost of college to finance a new laptop, but every dollar borrowed is a dollar more (plus a lot of interest) that you’ll have to find a way to repay.

Fourth, if you’ve already dropped out, try to figure out a way to complete your degree. If you can get a job that offers tuition reimbursement (even some hourly wage jobs like at McDonalds and Chick-fil-A offer tuition help to employees), pay your way one semester at a time or look for return to school grants or assistance (some state unemployment offices have education grants), you should go back to school. Completing your degree will give you more and better job prospects enabling you to stay on top of your debt.

Finally, if you can’t get back to college but are struggling with student loan debt, consider looking for a job that offers student loan forgiveness. Some government jobs and public service positions offer these benefits and can be a great way to get out from under your student loan obligations.

And one last caution about dropping out…

If you receive federal-aid funds such as a Pell Grant, you should be very careful about when you drop out. Hopefully you’ll decide not to ditch school, but if you do so mid-semester, there can be additional repercussions. If you withdraw prior to the 60% point of the semester, Title IV government funds may have to be paid back immediately to the financial aid office.

Title IV Funds that may have to be returned include:

  • → Unsubsidized Federal Stafford Loan
  • → Subsidized Federal Stafford Loan
  • → Federal PLUS Loan
  • → Federal Pell Grant
  • → Federal Academic Competitiveness Grant – ACG
  • → Federal Supplemental Educational Opportunity Grant – FSEOG

If you drop out short of completing 60% of your coursework in a semester, a portion of these funds (even the loans) will come immediately due. It’s a pretty complex calculation that determines how much you’ll pay back – maxing out at 50% of student aid for the semester. You can access an online repayment calculator here.

Whether you’re still in school, dropped out or graduated and are juggling student loan debt, try Tuition.io’s free loan optimization tool to better manage your debt.