Students decide to drop out of college for a variety of reasons. Whether it’s because of a family emergency, work obligations, or general academic stress, students decide to leave college before receiving their degree every day. While leaving college early for any reason is always an option, you may not realize that you will ultimately be required to pay portions of your financial aid back to the federal requirement. If you are currently on financial aid, you must read this article before dropping out of college!
Students withdrawing from courses may be required to pay back funding received from Title IV programs, including the Federal Pell Grant and Federal Supplemental Educational Opportunity Grant (FSEOG). You may also be required to repay state aid, as well as student and parent loans. Your school’s financial aid office will notify you in writing, letting you know the exact amounts you must repay.
Pay Back Formula
Due to new regulations, the federal government now requires students to actually earn their financial aid. What does this mean? A refund-calculation formula determines the percentage of financial aid that a student has earned, along with the percentage they may eventually owe back. The formula used by the Department of Education determining how much financial aid a college dropout now owes back is as follows: students are required to pay back 50 percent of whatever portion of financial aid not used to cover college tuition costs. The exact size of this portion depends on when during the semester the student officially withdraws.
Sample Financial Aid Scenario
Do you find all of this to be very confusing? Follow the example below to get a better idea of what we’re talking about.
Student A is awarded a $2,500 Federal Pell Grant for the fall semester and uses $1,250 to cover tuition costs. One-forth of the way through the term, the student decides to withdraw. Under guidelines established by the U.S. Department of Education, Student A only earned 25 percent of this grant before dropping out, so the unearned portion of the grant “75% or $937.50” used on tuition costs must be returned. However, Student A is personally responsible for paying back only 50 percent ($468.75) of his unearned aid not used toward tuition. Since Student A dropped out one-fourth of the way through the semester, he or she earned only $312.50 of the original $1,250, plus 50 percent of the remaining amount of $937.50 ($468.75). The remaining 50% (also $468.75) is what the student is now required to pay back.
Dropping out and Repaying Financial Aid
If you drop out of college, you will also be required to repay any student loans you received at an accelerated rate, typically six months after withdrawal. You should also be aware of the fact that some institutional and private scholarship policies require you to repay your scholarship award if you drop out of school during a term in which you received funding.
A Note of Caution Before You Drop Out
If you are currently attending college and are considering dropping out, first stop and think about whether you will actually be able to pay back your financial aid. If you cannot afford to pay back, it might result in a default. If you default, it can ultimately wreak havoc on your credit report and score, perhaps seriously hindering you from receiving additional credit in the future. Do whatever you can to stay in school if possible, as earning a college degree can only help you. If dropping out is unavoidable, try to withdraw as early in the semester as possible, so as to receive the biggest refund possible. If you regret having enrolled in college before classes even begin, you may be able to receive a full refund for the semester. Remember: even if you are owed a refund, you still may not receive any money, as federal and state agencies that provided funding must be repayed first.