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Repaying student loans while unemployed

Unemployment can affect your day-to-day bills like rent, groceries, car payments, and more, and student loans are probably the last thing you want to think about. But there are ways to manage your student loan payments while you’re unemployed—including deferrals, alternative repayment plans, and more.


Do you have to pay student loans if you lose your job?

If you lose your job, you still have to pay off your student loans unless you ask your lender for some form of relief. In other words, your student loans are not automatically extended or forgiven once you lose your job.

Lenders that offer forbearance typically limit these terms to a few months at a time, for a total of several years over the life of your loan. In this case, you must continue to repay the loan while you are unemployed.

The exception to this rule is the federal government’s current moratorium on federal student loan payments. All eligible federal student loans automatically entered this forbearance period at the start of the coronavirus pandemic. While the relief is available to all federal borrowers regardless of employment status, it was introduced in part to help borrowers who have lost their jobs due to the pandemic.

How to Reduce Student Loan Payments During Unemployment

If you’re unemployed and looking for ways to adjust your student loan payments, you have several options; however, your options depend on whether you have government or private student loans.

Federal Student Loans

Unlike private student loans, federal student loans provide standardized benefits to all borrowers. If you have government student loans and are looking for ways to lower your payments, try one of the following:

  • Procrastination or patience. The federal government is offering unemployment deferrals, which allow you to suspend payments for up to three years – although interest may accrue during that time. To be eligible, you must be receiving unemployment benefits or looking for full-time employment but cannot find it.

  • Income-based repayment plan. Income-based repayment plans determine your monthly repayments based on your income and family size. If your income is $0, your payments may be as low as $0. Payments will remain the same until your earnings change. On the downside, you’ll be placed on a new amortization plan for 20 or 25 years.

  • Staggered repayment schedule. If you don’t want to commit to a 20- or 25-year repayment period with an income-based amortization plan, you may consider switching to a phased amortization plan. The plan starts with low payments and increases every two years for a total of 10 years. This is ideal if you are currently unemployed but plan to return to the workforce soon.

Private student loan

Private student lenders have all identified their own options for reducing student loan payments, so the programs available depend on your lender. However, you may find the following options:

  • Procrastination or patience. Most lenders offer deferrals or deferrals to suspend your loan payments for several months at a time. Most lenders limit these programs to 12 or 24 months of your loan term.

  • Unemployment Insurance. While there are few programs specifically tailored for unemployed borrowers, you may find unique benefits for some lenders. For example, SoFi provides unemployment protection for borrowers who lose their jobs through no fault of their own. The program delays your credit, but also allows you to take career guidance and resume reviews.

  • Refinance. If you’re having trouble paying your student loans and your lender doesn’t offer deferrals, you may choose to refinance. In this case, you’re still looking for student loan payments, but you may be able to negotiate a lower monthly bill.

If you’re not sure what your lender offers, it’s worth asking. Many lenders would rather compromise with you than see you default on your loan, so call your lender to find out what options are available to you.

How to Apply for an Unemployment Extension

If you’re temporarily unemployed, deferring your loan may be the smartest option. If you have federal student loans, you can fill out an unemployment deferral form to apply. The questionnaire will tell you if you are eligible for an extension. You send this form to your credit provider along with all relevant documents.

If you have private student loans, the process for requesting an extension depends on your lender. Many have application instructions on their website or in your online account, although you may need to call your lender to learn about your options.

What happens if you don’t pay your student loan?

If your student loan payments are a few days late, your loan will default and stay that way until you pay the overdue amount or change your payment schedule. At some point, your loan will officially default; this happens after 270% of most government student loans go unpaid, but private loans can be faster.

In the short term, late payments mean being hit with late fees. However, credit service agencies also report late payments and defaults to the credit bureaus, which means your credit score starts to drop.

Whether you apply for a credit card, car loan, or mortgage, your credit score can be affected, affecting your chances of borrowing in the future. It also means you could lose income until the loan is repaid. For example, your tax refunds, federal benefit payments, and wages can all be used to pay off your outstanding student loan debt—so it’s important to grab your student loans before you reach this default stage.

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