Repayment of student loans while unemployed

ByRichard C. Sloan

Apr 28, 2022

Being unemployed can take a toll on your day-to-day bills, such as your rent, groceries, car payment and more, and student loans might be the last thing on your mind. However, there are ways to manage your student loan repayments while you’re unemployed, including deferment, alternative repayment plans, and more.

Do you have to pay student loans while you’re unemployed?

If you are unemployed, you are still responsible for your student loan repayments unless you request a specific form of relief from your lender. In other words, your student loans are not automatically terminated or suspended once you are unemployed.

Lenders who offer forbearance periods usually limit these periods to a few months at a time and a few years in total over the life of your loan, so if you’ve already taken advantage of them, you may not have the option available. In this case, you will have to continue paying your loans while you are unemployed.

The exception to the rule is the current federal government pause on federal student loan payments. All eligible federal student loans were automatically placed in this forbearance period when the coronavirus pandemic began; while all federal borrowers can take advantage of this relief, regardless of their employment status, the measure was put in place in part to help borrowers who had lost their jobs due to the pandemic.

How to Reduce Your Student Loan Payments While You’re Unemployed

If you’re unemployed and looking for ways to adjust your student loan repayments, you have a few options; however, your options vary depending on whether you have federal or private student loans.

Federal student loans

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

  • Adjournment or abstention. The federal government offers an unemployment deferral, which allows you to suspend your payments for up to three years, although interest may accrue during this time. To qualify, you will need to be receiving unemployment benefits or be looking and unable to find full-time employment.
  • Income-driven repayment plans. Income-based repayment plans base your monthly payments on your income and household size. If your income is $0, your payments can also be as low as $0. Payments stay that way until your earnings change. The downside is that you will be placed on a new repayment plan with a term of 20 or 25 years.
  • Graduated repayment plan. If you don’t want to commit to the 20 or 25 year repayment period of an income-driven repayment plan, you may want to consider switching to the phased repayment plan instead. This plan will start your payments low and increase them every two years for a total of 10 years. This is ideal if you are currently unemployed but intend to return to the workforce soon.

Private student loans

Private student lenders all set their own options for reducing student loan repayments, so the programs available depend on your lender. However, you can find options for:

  • Adjournment or abstention. Most lenders offer a deferral or forbearance to suspend your loan repayments for a few months at a time. Most lenders limit these programs to 12 or 24 months over the life of your loan.
  • Protection against unemployment. While it’s rare to find programs specifically tailored to unemployed borrowers, you can find unique benefits with some lenders. SoFi, for example, offers unemployment protection to borrowers who have lost their jobs through no fault of their own. This program puts your loans on hold but also allows you to sign up for career coaching and resume reviews.
  • Refinancing. If you’re having trouble repaying your student loan and your lender doesn’t offer a deferment, you can choose to refinance instead. In this case, you will still be responsible for your student loan repayments, 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 work with you on a compromise than have you default on your loans, so call your lender to see what options are available to you.

How to apply for an unemployment deferment

Deferring your loans may be the smartest option if you are temporarily unemployed. If you have federal student loans, you can complete a unemployment deferment form to apply. The questionnaire will let you know if you are eligible for a deferral or not. You will send this form, along with any relevant documentation, to your loan manager.

If you have private student loans, the deferral application process depends on your lender. Many will have instructions for applying on their websites or in your online account, although you should probably call your lender to find out your options.

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

If you are a few days behind on your student loan payment, your loans become delinquent and they remain delinquent until you pay the delinquent amount or change your payment plan. Eventually, your loans will officially default; this occurs after 270 of non-payment for most federal student loans, but it could be sooner for private loans.

In the short term, late payments incur late fees. However, loan officers will also report late payments and defaults to credit bureaus, which means your credit score will start to drop.

Your nose-diving credit score hurts your chances of borrowing in the future, whether it’s a credit card application, a car loan, or a mortgage. It also means you could lose income until your loan is paid off. For example, your tax refund, federal benefits, and wages could all be garnished to pay off your outstanding student loan debt. It is therefore important to advance your student loans before reaching this default stage.

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