The day Shelby-lyn Miller was laid off, she signed a nondisclosure agreement and was escorted out of the office. Unfortunately, the $7,000 severance check in her hand wasn’t enough to calm her nerves.
“I was in a panic, freaking out about how I was going to pay student loans, pay for gas, make rent — the list goes on,” said Miller, a digital marketer who was 21 at the time.
About 15% of employees are laid off or discharged from their positions annually, according to the Bureau of Labor Statistics. Just like preparing yourself for a stock market downturn, readying for a change in employment — even a change that seems out of your control — could help you manage your education debt.
Here’s what you need to do to prepare for a layoff generally, and then how you can get your student loans in order too, whether by changing your payment plan or pausing repayment altogether.
How to prepare for a layoff
Miller knew her days were numbered, yet she still put her head down and did her work. In retrospect, she might have benefitted from more preparation.
Look for red flags and assess your risk
Maybe you’re reading this because you’ve noticed warning signs around your own workspace. Perhaps your company’s performance has fallen off in recent quarters. Or you could be feeling the impact more directly, if, for example, the company might have stopped hiring new employees or giving promotions.
Whereas Miller’s layoff was due to a deteriorating relationship with her manager, Alexandra Sheehan, another student loan borrower, was sent home because the digital agency where she worked was running out of money.
“Right before I lost my job, a few clients had dropped, so I knew the company was going to have (to) make staffing changes to be able to afford everyone on the payroll,” said Sheehan, who was a content manager earning a $57,000 salary in 2017. “Given that my boss knew that I was unhappy with the lack of resources, I saw the writing on the wall.”
Just because your employer could be downsizing, of course, doesn’t mean it’ll be you on the chopping block.
According to Nancy Noto, who’s spent years as a human resources executive, the first rounds of layoffs typically affect low-performing employees in redundant positions.
“[It also often involves] employees in non-revenue-generating roles, meaning roles that are not driving sales but instead costing the company money to keep people employed,” Noto said. “Then you might be at risk.”
Put your career first, your company second
If you’re a high-performing employee but still vulnerable, you might try avoiding a potential layoff by applying for a more indispensable position within your company.
“I have definitely seen people moved from one business line to another,” Noto said, “because they were so talented and good at what they do, even though the business unit or product they previously worked on was shutting down.”
Look outside your office doors for other opportunities. For example, you’d be wise to rededicate yourself to networking and updating your resume.
If you’re asked in job interviews why you’re leaving your post, said Noto, there’s no reason to beat around the bush.
“Be honest and let them know that [your] current company is going through some strategic changes that could impact [your] role,” she said, though at the same time, “focus on the new opportunity and why it’s compelling.”
Of course, finding full-time work elsewhere takes time. For Miller, it was nearly three months before she found a job in her field. While searching for opportunities, she bided her time working double shifts in a restaurant.
Sheehan, on the other hand, saw her layoff as a sign she needed to try freelancing full-time. In fact, if you can develop a side hustle before falling victim to layoffs, you could land on your feet even faster.
How to unemployment-proof your student loans
If layoffs are coming down the pike, you should be concerned about how it would affect your finances.
Here’s how to ensure you won’t miss a student loan payment in the face of unemployment, avoiding any risk of delinquency and default.
Make loan repayment a part of your financial plan
If your employer appears to be cutting back on spending, you should look to trim expenses too. Should you suddenly find yourself without an income, you’ll be glad you made a plan. Growing your emergency fund, for example, could pay dividends if you need more than a month to find your next job.
You might also max out your employer benefits while they last. You could take care of any medical check-ups before shifting to out-of-pocket replacement insurance, manage your health savings account funds or increase your 401(k) contribution.
Don’t make any of these money moves, however, without considering how they might affect your student loan repayment. You might actually decrease your retirement investing, for example, if you’re concerned you won’t have enough cash to meet your minimum monthly student loan payment.
Adjust your repayment plan
If being laid off leaves you high and dry, you might have trouble keeping your loans current. Fortunately, however, you do have options.
With federal student loans, you could chose to enroll in income-driven repayment (IDR), which caps your monthly bill at a percentage of your disposable income. Your monthly payment might drop all the way to $0. The downside, however, is that the lower your payment, the more interest will accrue onto your balance.
If you have private loans (and therefore don’t have access to IDR), start by communicating with your lender. If they’re unable to adjust your repayment plan, you might carve out room in your budget to make the minimum monthly payment and no more. That was Sheehan’s strategy.
“When my income slowed down, I reverted back to the minimum payment,” she said. “Luckily, I didn’t hit the point where I needed to reach out and ask for lower monthly payments. If I really got into a bind, I know my parents would’ve helped me.”
Postpone your payments
Delaying monthly payments is more costly because it allows interest to accrue and capitalize onto your loan balance even faster. Still, you might determine that a deferment or forbearance is worth the added cost.
There are many ways to press pause on your federal loan repayment, including in cases of unemployment. In fact, you could suspend payments for up to three years if you’re unable to find work. (You could even receive a deferment retroactively if you’ve already lost your job.)
Forbearance offered by private lenders come with more restrictions — if they’re offered at all. Top-rated online companies like CommonBond offer a respite in cases of economic hardship. Unlike federal loan servicers, however, private lenders rarely provide clear-cut guidelines on qualifying for a postponement, typically making case-by-case determinations.
Refinance with a lender offering protection
If you have private loans but are unsatisfied with your lender’s repayment safeguards, you could refinance with a competing bank, credit union or online lender.
Student loan refinancing offers the potential to reduce your interest rate or monthly payment amount. To qualify, you would need a strong credit score and debt-to-income ratio or a cosigner who has both.
A stable career helps appease lenders too. If you’re worried about your job, however, you could prioritize those lenders that offer unemployment protections.
Just keep in mind that refinancing federal loans would irreversibly remove their government-exclusive protections, including IDR and mandatory forbearance.
Do your best to prepare for the worst
Without her office job, Miller had to figure out how to keep up with her student loan payments. Even though college in her native Canada might have been a little less expensive than at the average U.S. school, education debt is a reality on both sides of the border.
With few financial options available, Miller’s worst-case scenario came to life: She resorted to working at a restaurant chain where tight tops and heels were part of the required uniform.
“The transition was hard,” said Miller, who has since moved up to the role of marketing manager at Wicket, a digital management software firm. “I went from a corporate job to working right around the corner where my ex-bosses, co-workers would often come in with clients, and that was humiliating.”
To avoid her fate, you might instead follow in Sheehan’s footsteps. She had freelancing to fall back on when her pink slip arrived.
“It’s always easier to set yourself up when you’re not in a position of desperation,” she said. “Even if you’re not able to freelance on the side with your profession, there are other ways to generate income.”
By getting out ahead of a potential layoff and making plans for your student loans, you give yourself the best possible chance to recover quickly. If you’ve already been let go, however, check out our guide on recovering from a job loss.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 5.64%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.28%3||Undergrad & Graduate|
|1.89% – 6.77%4||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 5.61%5||Undergrad & Graduate|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.