Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
Getting laid off? Not great. Getting laid off with student loans? Even worse. Although the payment pause for federal student loans has been extended well into 2023, now is a good time to plan ahead and rethink your payment plan.
Fortunately, there are options for borrowers to lean on when they lose their jobs or experience another change in circumstances.
While many of these repayment plans can increase the amount you pay over time, including interest, they can make your student loans more affordable during a temporary period of financial hardship.
How COVID Affected Student Loans
COVID-19 led to pretty major derailments for some of us. Whether you were just starting your career or had a rapidly growing resume, there’s a good chance your job situation looks different now than before the pandemic.
Unemployment filings reached a record high at the end of March 2020, meaning a slew of people wondered how to pay their student loans with no job. Educational debt can be difficult to keep up with under the best of circumstances, let alone in the midst of a crisis. Fortunately, the government made some moves to offer federal student loan borrowers some solace.
The Trump administration suspended both principal and interest payments on federal student loans through January 2021. President Biden then extended the forbearance several times, most recently until the second half of 2023. Payments automatically stopped on March 13, 2020, and the suspension doesn’t affect the borrower’s eligibility for student loan forgiveness programs.
To be clear, the ruling doesn’t affect privately held student loans, like the ones through lenders like Sallie Mae® or smaller providers. However, private loan holders may still have options that can help keep their loans from becoming financially overwhelming.
Recommended: How Do Student Loans Work? Guide to Student Loans
Talk to Your Student Loan Servicer
If your loans haven’t been automatically suspended, you can still reach out to your student loan servicer about a modified repayment agreement if you’ve lost your job or are otherwise experiencing trouble with your current plan.
Sallie Mae, for instance, has “instituted additional options for customers experiencing financial difficulty” due to COVID-19. The company invites borrowers to contact them via online chat or phone to discuss alternatives and assistance.
No matter who your lender is, there’s a good chance they can offer you a temporary solution if you’re unable to make your payments. You may be able to pause your payments, for instance — though you’ll probably still accrue interest during the pause.
Either way, it’s worth reaching out to lenders to update them on your situation and hear what they might be able to offer.
File for Unemployment
Unemployment insurance — commonly referred to simply as “unemployment” — is a joint federal-state benefit that offers cash relief to eligible workers who lose jobs through no fault of their own.
Each state has its own requirements and filing processes, which you can learn more about by selecting your state in the drop-down menu .
Unemployment benefits may offer you enough cash flow to make some payments toward your student loans, especially if you were able to modify your payment plan with your servicer. But if not, there are alternatives to consider.
Options for Paying Off Student Loans While Unemployed
Life moves in unexpected ways. Student loan servicers know that, which is why most have specific protocols in place for borrowers whose plans change in one way or another.
Here are some that might be helpful in the case of sudden joblessness.
Student loan forbearance allows borrowers to pause student loan payments or make a smaller payment for a set period of time. It’s available for both federal and private student loans, and it can take a big load off your monthly budget.
In many cases, it’s worth exploring other options before turning to forbearance. You may still be accruing interest during the forbearance period, which can drive up your total debt quickly.
You also may not be making any progress toward potential student loan forgiveness programs.
Recommended: Will Pausing Payments Affect My Credit Score?
Another option that may be right for you is student loan deferment, which works similarly to forbearance: You won’t be required to make payments for a temporary period, but you’ll still be responsible for the interest that will accrue during that time.
The main difference between forbearance and deferment is that deferments are usually granted in response to a certain life change, such as going back to school at least half-time or actively serving in the military, whereas you can always apply for forbearance (though it may not be granted).
Losing your job is another life change that may make you eligible for student loan unemployment deferment. Again, it’s important to understand that you’ll likely still be responsible for the interest generated during the deferment period, which could mean you pay more for your loan overall.
Certain types of federal student aid may not incur interest during the deferment, such as Direct Subsidized Loans, but you’ll want to double-check with your servicer before you make any decisions.
Income-Driven Repayment Plans
If you have federal student loans, you can look into income-driven repayment programs, which allow borrowers to adjust their payments based on what they can afford.
The government offers a variety of income-driven repayment plans, including the Pay As You Earn Plan (PAYE), the Income-Contingent Plan (ICR), and the Income-Based Repayment Plan (IBR).
Income-driven repayment plans generally reduce your payments to 10% of your discretionary income, which could bring your payments down to $0. The plans adjust once you’re making money again, ensuring that your payments are affordable. But because they might extend your overall repayment period, you can also end up paying significantly more interest in the long run.
In August 2022, President Biden proposed changes to some income-driven repayment programs as part of his forgiveness plan. Payments for undergraduate borrowers would be reduced to 5% of discretionary income instead of the current 10%.
Recommended: REPAYE vs PAYE: What’s the Difference?
Student Loan Forgiveness
A variety of programs allow certain borrowers to have their student loans forgiven, canceled, or discharged if they meet certain requirements.
In many cases, you will be required to have made a certain number of qualifying monthly payments on the loan and meet the terms for the specific forgiveness program you’re considering.
Many student loan forgiveness programs are contingent on the borrower being employed in a specific industry or by a nonprofit organization. That means this option might not help you during unemployment. But it’s worth keeping in mind over the life of your student loan. You might want to bookmark our guide to student loan forgiveness.
Dealing With Late Student Loan Payments
When you’re late making a federal student loan payment, your account quickly becomes past due or “delinquent.” You’ll likely face a late fee, which is usually a percentage of the missed payment.
If you cannot make the payment, it’s important to call your loan servicer right away to make arrangements, such as deferment, forbearance, or a new repayment plan. Otherwise your account will remain delinquent, even if you continue to make subsequent payments on time.
If you are delinquent on your federal student loan for 90 days or more, your lender will report it to the three major national credit bureaus. Your credit score will take a hit, making it more difficult to qualify for good terms on loans and credit cards.
After 270 days, your loan will go into default. Defaulting on your student loan has serious consequences. First, the entire amount you owe on your loan, including interest, becomes due immediately. You won’t be able to take out any other student loans, and you’ll no longer qualify for deferment or forbearance. The government may take your tax refund and federal benefits and garnish your wages to pay off your loan.
Terms and fees for private student loans vary by lender, but the fallout from missed payments is essentially the same.
All you have to do to avoid delinquency and default is talk to your lender or loan servicer as soon as you can. The worst thing you can do is ignore the problem and hope it goes away.
Paying It Off: New Jobs, Side Hustles, and More
Although COVID led to layoffs, furloughs, and hiring freezes, many companies are now actively recruiting again. If you’re back at work but still struggling to make payments, consider ways to bring in some extra money each month.
That’s where the side hustle comes in. Many people have turned their crafting hobby into a small business on Etsy. Others are delivering groceries or pre-made meals with a service like Instacart. Check out our roundup of 9 ways to pay off student loans.
Once you’re back on your feet, refinancing student loans is one way to reduce your debt burden. It can be difficult to refinance while unemployed: Income is one of the factors lenders look at when assessing potential borrowers. But when you’re ready, refinancing private student loans, or a combo of private and federal loans, can lower monthly payments, the interest rate, or both. And that can make loans more affordable in both the short and long term.
It is important to remember that if you refinance your loans with a private lender, you forfeit all of federal benefits, including student loan forgiveness and deferment.
After a job loss, student loan borrowers have options. Deferment and forbearance allow you to pause payments during times of financial hardship. Just be aware you’ll still be responsible for the interest that accrues during the payment pause. Income-driven repayment plans are another option that can lower your monthly loan bill to as little as $0. Talk to your lender as soon as you foresee a problem paying your bill. That way you can protect your credit score and reduce the stress that comes with loan delinquency or default.
If you’re hoping to reduce your monthly student loan payment, SoFi offers student loan refinancing with a simple online application. There’s no origination fee, and borrowers get access to exclusive member benefits that include an unemployment protection program*.
SoFi Student Loan Refinance
*If you become involuntarily unemployed, deferred payments may be applied for a maximum of 12 months, in aggregate, over the life of the loan. Additional terms and conditions apply; see SoFi.com/faq-upp for details.
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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