How to Handle Student Loan Payments When You Lose Your Job

student-loan-unemployment

It’s the last place any borrower wants to find themselves in: you’ve got a boatload of student loan debt to pay off, but you’ve just lost your job. You don’t have an income, there are bills to pay, and your loans, sadly, won’t just magically disappear.

While your job may be gone (for now), all hope is not lost. Don’t panic! There are plenty of options out there to get those loan payments made on time while you’re temporarily out of work.

Take some of these steps to get your student loan debt under control until you get back on your feet again.

How to handle student loans when you’re unemployed

There are some unwise ways go about paying down your debt if you’re unemployed – taking out a high-interest payday loan, racking up credit card debt, or simply giving up on your payments.

Consider these options instead:

1. Contact your servicer

Calling your student loan servicer should be the first thing you do if you’re worried about making payments. You may be able to arrange some kind of agreement with them, like a temporary hold or adjustment on your payments, with no strings or penalties attached, while you seek a new job.

If you have federal loans, consider deferment. If you qualify, student loan repayment is paused for up to three years. You won’t have to pay interest during deferment if you have Perkins or subsidized loans. However, if you have an unsubsidized loan, such as PLUS loan, the interest will be capitalized and rolled into your loan balance.

Forbearance is another option for lowering or pausing federal student loan payments. Keep in mind, however, that you only have up to 12 months before you need to start making full payments again, and interest will continue to accrue regardless of the types of loans you have.

Though private student loans aren’t eligible for traditional deferment or forbearance, many private lenders offer their own unemployment protection benefits, including:

  • DR Bank is financial provider with a student loan repayment program that comes with unemployment protection (short-term forbearance or deferment) if you’re out of work and can’t afford your payments.
  • SoFi has an unemployment protection program that, if approved, puts your loans in forbearance for three-month increments, up to a year. Just remember that your loan still accrues interest during this time.
  • Earnest also has its own forbearance option, which puts your loans in a temporary period of reduced-to-no payments.
  • Common Bond’s loan refinancing program may be an option for borrowers from the outset, since it comes with unemployment protection and a job searching tool just in case you end up out of work.

As always, when seeking a deferment, forbearance, or other protection package, you’ll need to prove that you are actively seeking employment.

2. Apply for unemployment

While you’re working out a plan with your student loan servicer, apply for unemployment benefits. You can visit your state’s employment website for more information on applying. You may be eligible for a few to several months of benefits you can use towards paying your debt.

3. Tap into alternatives

Do you have other ways to garner extra money, like starting a side hustle or even a crowdfunding campaign to ease the burden of debt without a steady income flow?

Brainstorming ways to find some extra cash for your loan payments can also help ease your debt burden. Just be careful not to exhaust your funds at the expense of other expenses, like bills, rent, or groceries.

4. Take care of that interest

If possible, focus on paying just the interest on any deferred private or unsubsidized loans, or during a period of forbearance, since letting it accrue will result in an even bigger financial headache (and loan balance) down the road.

With careful budgeting, you may still be able to afford a small interest payment a month and stay on top of your debt balance, even if you don’t have a steady income at the moment.

5. Plan for the future

Ok, so nobody can see the future. After all, you wouldn’t be reading this if you were prepared to lose your job.

Even so, it’s worth emphasizing the importance of building an emergency savings fund for circumstances just like this. Once you get back on your feet, make it a priority to start socking away a bit of extra cash. Financial hiccups happen, so put yourself in the best possible position to handle them.

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