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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
Satisfied Customers: 3346
Experience:  15+ years tax preparation and tax advice.
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What happens to my student loans when I withdraw from class

Customer Reply

Customer: replied 8 years ago.
My students loans have already disbursed to my accounts and I received a small refund. I have been sick this session and found myself falling behind. I don't want to receive a grade below B, I may need to withdraw. What happens to my financial aid since the loans have already been disbursed? Will the school send the lending institute back the money that has already been disbursed; leaving me a balance owed to the school?
Expert:  Wendy Reed replied 8 years ago.

Hello there,

I went through a similar situation with my child. What happens is that you will withdraw, and the institution will process your account. There is a formula that the institution uses to figure out how much if any you are due as a refund, and if so how much will be paid to you directly (if you paid any of the tuition and fees out of pocket in addition to the loans). The refund (if any) will be paid to the lender, and the lender will be notified that you have withdrawn. You will still owe any remaining balance to the lender. It would be beneficial if you spoke to the financial aid office at your school so that they can explain to you the process in detail. You may also want to call the lender to see when payments toward the loan need to begin if you do withdraw.

Customer: replied 8 years ago.
Reply to Wendy Rieger's Post: No; Your reply didn't answer my question. I know that I will owe the lender a remaining balance; however, will I owe the school? For example: Let's say I have a subsidize loan for $3000, which had disbursed for this term, and the cost of this 8-week session was $2500. The school sent me the balance, as a refund, of $500. This is an 8-week graduate course. During the 5th week, I drop out. What happens to the $500 that they disbursed to me and what happens to the other $2500 that was applied to the course? And, what happens to my financial aid for the next term?
Expert:  Wendy Reed replied 8 years ago.

I'm sorry. There is an institutional formula that the school will use to determine how much of your tuition will be refunded to you. This is based on your attendance. The school will generally keep whatever loan proceeds they have to cover your tuition balance, and then pay the lender if there is anything left. So no, you should not owe the school, but you should check with the school's billing office and request a final bill or final account statement to make sure that there are no errors.

Presumably, if there is no refund past the 1/2 way point of the term, and the school keeps the $2500 for tuition, and you have kept the $500, you will still owe the lender $3000.

You will need to speak to the lender and possibly the school financial aid office to determine whether or not you are still eligible for any predetermined aid next semester.

I am sorry that I can't be more specific, but this is generally the way that it works with universities and fin. aid lenders, but different schools have different policies regarding tuition and loans.

Please get the names of contacts at your school and the lender's office, and request statements in writing to protect yourself.

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