When you’re unemployed, it’s hard enough getting out of bed in the morning, let alone searching for a job. Add to that the stress of dealing with your student loans and it’s a wonder you can get out of bed at all.
We wish we could snap our fingers and make your student loans disappear when you can’t pay them (and even when you can). Instead, we’ll have to settle by giving you some advice on how to deal with them while you’re unemployed.
Before we go into it, the first thing you should do when unemployed is apply for unemployment benefits, if you’re eligible. Any income is a step in the right direction when you have bills you need to pay. Look up your state’s unemployment requirements to see if you’re eligible and how much you can get.
After that, you need to make sure you're budget is in order and you're still handling your student loan debt.
Here's our advice that will hopefully get you on the right path so you can focus on your job search.
What If I Ignore My Student Loans?
If you ignore your student loans, you might feel better for a while (there’s nothing like a little act of rebellion to fire yourself up), but it can severely affect your credit in the long-run.
- After 90 days of not paying, your loans will become delinquent, the delinquency will be reported to the credit agencies, and you may start seeing late fees. You may also hear from your servicer more often.
- After 270 days of not paying, your loans will enter into default. This is where the real harm happens. In default, your entire balance becomes due and you will no longer be eligible for federal programs like deferment and other repayment plans.
For a more in-depth look at what happens when you don’t pay, read this article.
What Do I Do With My Loans While I’m Unemployed?
You’re going to want to talk to your servicer, but it’s a good idea to come to that conversation prepared. Being familiar with your options ahead of time will help you choose the right one for your situation
If you don't know what your options are, you're not going to know what to ask for when you talk to your loan servicer or if you do it yourself.
Repayment Plan Options
Brace yourself. The following repayment plans can get confusing. We broke down the types of repayment plans, but this is not a comprehensive guide. The U.S. Department of Education has a handy calculator tool that lets you see payment estimates for each plan based on your specific loans.
We suggest checking that out to get an idea of what your payments will look like for the different plans. But even though the numbers may look good, the other terms may not, so take a look at the following information to get a feel for the payment plans.
For example, if the graduated payment is the lowest, but you don’t think your income will grow enough in your future, you might want to stay away from the graduated payment.
Income-driven repayment (IDR) plans base your payment amount on your income and family-size. Then after 20–25 years of payments, any remaining balance will be forgiven. When you’re unemployed, you might be able to score a $0 payment, but don’t let that excite you too much.
There are a couple things you should consider before jumping into an IDR plan. Anytime you increase your loan term, you’ll pay more in interest over the life of the loan.
If you make enough money down the road to pay off your total loan balance before your loans would be forgiven, you will end up paying more because of interest in the IDR than you would have in the Standard 10-year plan.
Income-driven plans require annual paperwork as well. Since payments are based on your income, you are expected to report your income to the Department of Education each year. If you miss the deadline, your loans will go back to a Standard plan and all accrued interest will be tacked onto your loan balance.
If you choose to enroll in one of the available IDR plans, we suggest keeping track of recertification deadlines yourself. We also recommend paying more than the minimum payment whenever you can.
The quicker you pay it off, the less interest you pay on it and — surprise — the sooner you can stop paying.
Here are some of the income-driven repayment options, with some basic pros and cons:
Income-based repayment (IBR)
Payments are never higher than the Standard repayment amount. Only plan available to both Direct Loans and FFEL loans.
Pay more overall if you pay off the loan within the loan term.
Income-contingent repayment (ICR)
Only plan available to parent PLUS loan borrowers,
Payments have no cap, even if they go above the Standard repayment amount. Longest loan term at 25 years.
Pay As You Earn (PAYE)
Payments are never higher than Standard repayment amount. Shortest loan term at 20 years.
Only available for loans taken out in a certain time period.
Revised Pay As You Earn (REPAYE)
No income requirements.
Payments have no cap, even if they go above the Standard repayment amounnt. Only plan that uses your spouses info even if taxes were filed separately.
If you’re already on an income-driven repayment plan when you become unemployed, submit a new application to recalculate your payment with your unemployment income, no matter when your next recertification deadline is.
On the application, make sure to specify that you are submitting the document early so your servicer will recalculate your payment immediately.
This option simply extends the time frame you have to pay off your loans, thus lowering payment amounts. Remember that the longer the loan term, the more you pay in interest.
To limit how much you spend overall, we suggest either paying more than the minimum payment whenever you can or switching to another plan when you can afford it. You can switch from this plan to another at any time. The same goes for the next plan.
This option starts your payments off small and they grow over time — usually every two years. Similar to the Standard repayment plan, you’ll make payments for 10 years. After a few years, you’ll be paying more than you would have on the Standard plan, to make up for smaller payments at the beginning, and you’ll pay much more in interest over the life of the loan.
For federal loans, if you’d rather not change your repayment plan, you can choose to delay your payments through forbearance or deferment.
- Deferment: Federal student aid offers unemployment deferment for this specific purpose. You can get up to 36 months of deferment. The main benefit of determent is that you will not be responsible for interest that accrues on subsidized loans or Perkins loans while in deferment.
- Forbearance: While unemployed, you can apply for general forbearance. This will count toward a limit if three years of available forbearance so use it wisely. Also, while in forbearance, you will be responsible for interest that accrues on all loans. You can choose to pay the interest as it accrues, but you are not required to. If you do not, it will capitalize at the end of your forbearance and you may end up paying more over the life of your loans.
If you have private loans, some servicers provide forbearance, but they are not required to, so do your research. If they do provide it, they will continue to charge interest. Similar to federal loans, you have the option to pay the interest while in forbearance, but you are not required to.
Alternately, some private loan servicers may allow interest-only payments while unemployed. And some even have unemployment protection. If your servicer has none of these options and/or a high interest rate, you can always refinance to one that does.
Maybe you don’t want to mess with your loans, or maybe you want to supplement those changes with others. Either way, there are things you can do to make your payments easier to handle.
A big one is to cut costs in other parts of your life. The more you save, the more you can put toward your student loan payments.
Here are some ideas:
- Cut expenses you don't need, like cable or subscriptions you don't use.
- Move in with family or friends. Or rent out your spare room.
- Get creative with social activities. The cheaper, the better.
- Start a side hustle. For side hustle ideas, check out our article on 50+ Ways to Make Money Fast by Side Hustling.
○ Suggest free activities like walks, hikes, or picnics. Make it a potluck!
○ Get appetizers instead of full meals at a restaurant. Or split a meal with someone. Keep the alcohol to a minimum.
○ Look up free community events, like free museum days or movie-in-the-park events.
○ Volunteer with friends.
These are things you can do to help, but don’t let any of this distract too much from searching for a job. The sooner you get a new job, the sooner you won’t have to worry about making payments while unemployed.
Note: If you do take part time work or earn any money while collecting unemployment, you must report your earnings when you certify your benefits. For most states, you can earn a percentage of your weekly allowance before your benefits are reduced.
Earning some money on the side will increase your weekly income. Visit your state’s unemployment website or call your local unemployment office to see how a side hustle will affect your unemployment weekly allowance.
If you have any other advice on how to deal with your student loans while you’re unemployed, share it in the comments!
Have you ever had to use any of these student loan debt relief options before? Do you have a side hustle to help you pay off debt?