All federal student loans have a grace period that begins either when you graduate or stop attending classes. Even if you never finish school and earn your degree, you still have to pay back your financial aid. If you received federal grants to go to school, and drop out at midterms or halfway through an academic term, you may have to pay a portion of that grant money back to the U.S. Department of Education.
About Financial Aid
When the Department awards you federal student loan and Pell grant money, the award amounts are the estimated costs to attend school for the entire school year. The Department of Education splits the financial aid award according to the number of academic terms in the school year. For example, if your school uses semesters, you receive one financial aid disbursement during the first semester and one during the second semester. If you attend school for the entire academic term, the Department of Education regards you as having earned 100 percent of your award amount for that term.
Colleges and universities generally administer midterm exams halfway through each academic term. If you drop out of school at midterms, the Department of Education regards you as only having earned 50 percent of the award amounts for that term. If your midterms occur when you are 60 percent or more through the academic term, the Department of Education regards you as having earned 100 percent of your federal student aid. For example, if your academic term is 15 weeks long and midterms occur at week 9 when you drop out, you are 60 percent through the academic term and have earned 100 percent of your financial aid award. Your school applies your financial aid to your account and refunds any remaining money from that term to you.
If you receive Pell grants and finish out the academic term, you never have to pay that money back. However, if you drop out of school at midterms or halfway through the academic term, you must pay back half of the Pell grant award amount you did not use to pay for your higher education costs. For example, you receive a Pell grant award for one semester of $2,000. Your midterms are exactly halfway, or 50 percent, through the semester and you drop out. At this time, you only earned 50 percent of you Pell grant award for the term, or $1,000. This leaves $1,000 of unearned award money that is not going toward paying your education costs. You are responsible for paying back half of this amount or $500.
Federal Student Loan Grace Periods
Grace periods on federal student loans are typically six months after you graduate from school. During the six-month grace period, you do not have to pay back your student loans. If you drop out at midterms or halfway through the academic term, the grace period begins on the day you officially drop out or stop attending classes. You will have to begin making your student loan payments six months after this date.
Returning Federal Student Aid
If you drop out of school at midterms and midterms fall exactly halfway through the academic term, you should have approximately 50 percent of your total student aid for the academic term remaining. The school will return this aid to the U.S. Department of Education. If you earned only 50 percent of your financial aid and the cost to attend school exceeds that 50 percent, you are responsible for paying the balance on your student account.