Dealing with student loan debt when you are unemployed is extremely stressful. But you do have options, and there is help available if you can’t find a job after graduation. You may be eligible for deferment or forbearance of your loans and calling your lender may lead to lower payments. Let’s take a look at your options if you are unemployed with student loan debt.

What is deferment? 

A deferment allows you to temporarily stop making student loan payments. Federal student loans offer deferment, and you will need to check with private loan providers as to whether they offer deferment in times of unemployment. With federal loans, you are eligible for deferment while you are unemployed or unable to find full-time employment for up to three years.

During deferment, you are not responsible for paying interest on the following loans:

  • Direct Subsidized Loans

  • Subsidized Federal Stafford Loans

  • Federal Perkins Loans

  • Subsidized portion of Direct Consolidation Loans 

  • Subsidized portion of Federal Family Education Loans (FFEL) Consolidation Loans.

You will pay interest during deferment for some federal loans, however. These include:

  • Direct Unsubsidized Loans

  • Unsubsidized Federal Stafford Loans

  • Direct PLUS Loans

  • FFEL PLUS Loans

  • Unsubsidized portion of Direct Consolidation Loans

  • Unsubsidized portion of FFEL Consolidation Loans

To apply for deferment, you’ll need to work with your student loan provider. You will need to show documentation that you meet eligibility requirements. Be sure to keep on making payments on your student loans until the deferment is in place.

What is forbearance?  

A forbearance allows you to temporarily reduce the amount that you pay on your student loans.  Federal student loans offer forbearance, and you’ll need to check with private loan providers on whether forbearance is available. Unlike deferment, you are responsible for paying the interest that accrues on your federal student loans during forbearance.

You may be eligible for a general forbearance on a federal loan due to a change in employment. A general forbearance is available on Direct Loans, FFEL program loans and Perkins Loans. This general forbearance is granted for 12 months. And if you are still experiencing financial hardship when the forbearance period ends, you may request another one.

To apply for forbearance, reach out to your student loan provider. As with deferment, you may need to show documentation that you can meet eligibility requirements. And you’ll want to keep making student loan payments until the forbearance is in place.

What is income-based repayment?  

An income-based repayment plan for federal student loans is a repayment plan with monthly payments equal to 15% of your discretionary income divided by 12.  For new borrowers, the formula uses 10% of discretionary income rather than 15%. Income-based repayment plans are available on FFEL program loans and Direct Loans.  

You’ll need to submit your personal and financial information to apply for an income-based repayment plan. If you have already been approved for an income-based repayment plan and you become unemployed, you can request that your monthly payment be recalculated to reflect your loss of income. If you are just applying for an income-based repayment plan once you lose your job, you can list your current income as zero on your online application.

How to Manage Private Student Loans if You’re Unemployed 

When unemployment or another financial hardship hits, it’s important to call your private loan lender and let them know that your finances have drastically changed. Ask for help before you fall behind on a payment. Be honest about how much or how little you are going to be able to pay and try to work something out. With private loans, you may wish to ask for interest-only loan payments. 

What You Need to Know About Late Payments

With federal loans, your loan becomes delinquent the very first day after you miss a payment. Even if you start making payments again, your loan account will remain delinquent until you repay the past due amount or make other arrangements such as forbearance, deference or making a change in your repayment plan. 

If you are more than 90 days delinquent on a student loan, your lender will report the delinquency to the three major credit reporting bureaus. The reporting of this delinquency will lower your credit score, and make it more difficult to qualify for credit cards, car or home loans. 

Things get worse if you default on a student loan. For most federal student loans, you will default on a loan if you have not made a payment in more than 270 days. Once you default on a loan, you lose eligibility for receiving federal student aid and you may face legal consequences as well.

Take Action Now

In the meantime, sell your stuff to make extra money. Consider weird ways to pay off student loans. Do a side-hustle for extra cash. Consider taking on a roommate or moving back in with your parents or a friend, if that’s an option. 

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Have a question on student loans? Send your question to our Publisher and VP of Research, Mark Kantrowitz, the nation’s leading expert on student loans and financial aid. Email advice@savingforcollege.com. Your question may be featured in an upcoming article. Due to a high volume of submissions, not all questions can be answered.