what happens to people who take out student loans then drop out of school

Factual Questions
1

Like if someone goes for 3 years, then drops out and has 40k in loans. what happens to them? i assume they go into default but what does that mean exactly.

2

You get to start paying them back. My brother’s doing this, though he has only a year of loans to pay back. He didn’t have to start paying until the school verified that he wasn’t coming back last fall, so there’s a grace period. Otherwise it’s just like when you graduate – you gotta pay up.

3

Default =

  • ruined credit (never get a credit card, loan or decent loan for years)
  • if (see below why it is "if) you do get a job, your employer will see that your wages are garnished (hey, we all have a ssn) and will take out the loan payment AND the back payment and direct it to the loan company.
  • actually, with loans in default, you won’t get a good job because an employer will check your credit and won’t hire you based on your crappy credit history.
    And that is brutal truth.
4

You have really got to try hard to default on your loans, though.

If you drop out of school and you’re broke, you can apply for a forbearance or an economic hardship deferral. I think you get 3 years’ worth before they won’t buy your sob story anymore, and of course you don’t have to use the 3 years all at once.

If you are sending in regular payments, even if they are just $5, you won’t default AFAIK. To default you’ve gotta spend a couple of years completely ignoring them, never calling them, etc.

As far as employers go I’ve never heard of employers checking your credit rating unless it’s for a government job, FWIW.

5

For federal stafford loans, there is a six month grace period after you stop attending school at least half time. After that, you have to start repaying. For example, since I am back in grad school after being in repayment on my undergraduate loans, I had to take a form to my current schools registrar’s office and have them send it to my lender so that those loans could go into in-school deferment. I have to do that form at the beginning of each semester (which reminds me, I need to go do that today) or my lender will assume that I am no longer in school and begin billing me again. Payments of stafford loans are sent to your lender (or consolidator if you used one).
For perkins loans, which are also federal but are administered through the school,you have a nine month grace period after you graduate or stop attending at least half time. These payments are sent to your school.
For both types of loans, I confirmed my information through http://www.ed.gov.