The College Drop-Out's Guide to Refunds

How parents and students can recoup some of the tuition costs

The last thing most parents expect to see packed for college is a pair of cold feet. But a student threatening to drop out of school is no longer just a cute college rite that falls between midterms and winter break.

Nearly half of Americans who matriculate into four-year schools don't graduate, according to a recent study by the Organization for Economic Cooperation and Development. This places the U.S. behind nearly every major industrialized country when it comes to rates of college completion.

The pros advise families not to hedge against a child's perseverance with products like tuition-refund insurance, which some small private schools offer to parents. According to Mark Kantrowitz of Edvisors Network, these policies are typically saddled with pre-existing conditions and special limitations that might give a little peace of mind, but not much money back.

But if leaving school is the only option, here's a look at the financial issues parents and students should consider, and a few tips on getting at least some of the money back.

Tuition, Room and Board

Here's the good news: College finance advisers say there are ways to recoup big, upfront costs like tuition, room and board for the current semester, depending on the timing and the school. The bad news: The earlier the student decides (which could also mean the hastier the decision), the better chance of getting the money back.


New York University refunds 100% of undergraduate tuition and fees in the first two weeks of the semester. Johns Hopkins University grants undergraduates full refunds on tuition during the first six weeks, and half during weeks seven through 11, but no refund from week 12 onward.

Most schools will give back dormitory fees, less a per diem charge for how many days a student lived on campus. But if you paid a housing deposit, you may not get it back. Some schools, like Pomona College, won't refund their one-time fee deposit of $500 if a student withdraws after a certain date.

Backing out of private, off-campus housing is a bit trickier. Many landlords offer only 12-month terms that don't necessarily follow the academic calendar. And according to Peter Logan, communication director for University Housing at the University of Michigan, some landlords don't permit subletting if a student needs to back out of a lease early.

With this in mind, Trey Chappell, a college adviser in Scottsdale, Ariz., recommends that parents do their best to look for shorter leases during the initial apartment search so they won't be on the hook financially later.

Loans and Grants

Timing is also important when it comes to financial aid.

Students don't have to pay the government back Title IV federal grants for semesters already completed. These grants are disbursed during each term, and if a student drops out after completing over 60% of a term, he or she also does not need to repay the government the grant money for that term, says a spokesperson for the Department of Education.

But a student who drops out any earlier might have to repay a percentage; the amount would depend on how much of the grant had already been disbursed, how much the student owed the school and how much debt he or she had in federal student loans.

Federal loans are not canceled for past terms if a student drops out. The same goes for loans from the current term; however, these may be reduced depending on how much of the term the student completed.

When it comes to aid awarded from a school, what is due and what gets refunded varies "significantly" from one institution to the next, according to Edvisors' Mr. Kantrowitz.

Don't Walk Away From Debts

For debts already incurred, say, from previous terms, experts say you should expect to repay everything.

Leaving even a small bill unpaid could seriously hurt a student's prospects down the road. Most schools won't allow former students to re-enroll if they owe the school money. And, according to Mr. Kantrowitz, a school can refuse to provide official transcripts if a tab isn't settled. This could make transferring—even to a trade or community college many years later—a lot harder.

Uncle Sam is no less strict: When federal student loans go unpaid, Mr. Kantrowitz says, the U.S. can seize up to 15% of a borrower's wages, 15% of Social Security benefits, or even deny the renewal of a professional license.

Mr. Kantrowitz recommends arranging for exit counseling with the school's financial-aid department. Clear communication will help establish what's owed and how it should be paid off.

It can also help ensure the student is leaving for the right reasons. Dropping out in an "ill-conceived or frivolous" manner could make a judge wary of granting bankruptcy relief if loans become a problem in the future, says Rafael Pardo, a law professor specializing in bankruptcy at Emory University.

Make the Most of What's Left

If there is a younger brother or sister, or a sibling already in college, most 529 college-savings plans can be transferred to siblings or other first-degree relatives.

But some college-savings products have strict time limits: Coverdell Education Savings Accounts, for instance, must be distributed to most designated beneficiaries by the time they reach 30 or there will be penalties.

Also, 529 savings can be transferred to institutions that are eligible for Title IV federal aid, like Pell Grants or Stafford loans. Most U.S. universities are Title IV-eligible, but be sure that art school in Italy or trade school in your hometown is eligible, too.

If savings won't be needed for college after all, consider investing in the student's professional future. Charles Damga dropped out of McGill University in 2009, but he used the money his family had allocated for education to get himself started in the music business. He even used some of his savings to launch his own record label.

"I've put it into an investment, and it's just really paid off," he says.

His mom, Alice Matthews, agrees. "I trusted him." she says. "His leaving school for this just made sense to me."

Mr. Wells is a news editor for The Wall Street Journal in New York. He can be reached at

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