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A period of unemployment can make managing student loan payments feel overwhelming. Communicating with your lender or loan servicer early is crucial for finding options to keep your loans in good standing. Additionally, proactively managing your finances can help you avoid missed payments and protect your credit while you look for your next job opportunity.
Key Takeaways
- Deferment and forbearance each allow you to pause your student loan payments for a certain period, but they differ in how interest can accrue during that time.
- Unemployment benefits and government assistance programs can temporarily cover the cost of essential living expenses, freeing up funds for debt payments.
- Proactive financial management and budgeting can help stretch a limited income.
Deferment and Forbearance
Federal student loan deferment and forbearance each offer temporary relief from repayment. Deferment pauses payments under qualifying circumstances, which include:
- Attending school at least half-time
- Participating in an approved graduate fellowship, military service, or rehabilitation training program
- Actively seeking employment, but unable to find it
- Experiencing economic hardship
- Undergoing treatment for cancer
Note
Private student loans may or may not have forbearance and/or deferment options. Rules and terms can vary heavily among lenders.
Interest doesn’t accrue on subsidized federal loans while they’re in deferment.
Forbearance, by comparison, is typically granted if you meet any of the following criteria:
- Experiencing financial hardship
- Serving in the AmeriCorps or the National Guard
- Serving in a medical or dental internship or residency program
- Qualifying for a partial repayment under the U.S. Department of Defense Student Loan Repayment Program
- Qualifying for teacher loan forgiveness
While most federal student loans are in forbearance, payments can be either paused or reduced, and interest continues to accrue.
Warning
Interest that accrues during a deferment or forbearance period may be capitalized (i.e., added to the loan’s principal balance), increasing the total cost of your loan in the long run.
Income-Driven Repayment (IDR) Plans
Income-driven repayment (IDR) plans can significantly lower your monthly federal loan payments, potentially as low as $0, by basing them on a percentage of your discretionary income and household size.
Your minimum monthly payments under an IDR plan typically won’t be enough to cover the interest that accrues on your loans. However, whatever balance remains at the end of the repayment period (20 or 25 years, depending on the plan) will be forgiven. Annual recertification is required to maintain your enrollment in the plan and ensure your payments are accurate.
Important
The future of the current IDR plans is up in the air following a federal court injunction stopping the United States Department of Education from implementing the Saving on a Valuable Education (SAVE) plan and parts of other plans.
Unemployment Benefits and Assistance Programs
If you’ve lost your job through no fault of your own, you may qualify for unemployment insurance. The benefit payments from these programs are intended to temporarily replace at least a portion of your previous income while you look for a new job. Contact your state’s unemployment agency to determine your eligibility and how to file a claim.
Additional resources are available that can help cover the cost of essential expenses, making it easier to afford your monthly student loan payments.
- SNAP, WIC, and local food pantries offer free groceries or provide funds for you to purchase your own.
- The Low Income Home Energy Assistance Program (LIHEAP) and the Weatherization Assistance Program (WAP) can help with paying your utility and energy bills.
- The Lifeline program offers discounted phone and internet access.
- The Temporary Assistance for Needy Families (TANF) program provides cash assistance for housing, food, home energy, and childcare expenses, in addition to tuition payments for work-related education.
Budgeting and Financial Planning
While unemployed, staying on top of your finances is key to making the most of your limited funds.
Start by reviewing your income sources and fixed expenses, and prioritize essentials such as housing, utilities, insurance, debt, and transportation when determining your budget. Next, look for discretionary expenses, such as monthly subscriptions, that you can cut to save some money.
Another way to cut costs is refinancing or consolidating your student loans to simplify repayment and potentially lower your monthly payments. Just keep in mind that, should you refinance federal and private student loans together, you’ll lose out on the former’s benefits and protections. Finally, reach out to your lender or loan servicer as early as possible, as it can offer guidance on hardship programs or other forms of temporary relief that you may qualify for.
The Bottom Line
The best approach to navigating student loan repayment while unemployed is to plan ahead before you fall behind. By utilizing the right combination of hardship relief, repayment assistance, and careful budgeting, you can better weather this difficult period and hopefully position yourself for stability once your financial situation improves.
