Losing your job can affect every aspect of your financial life – including your ability to pay student loans. The good news is, relief may be available. If you have federal loans, you can apply for unemployment deferment to pause payments. Some private lenders also offer an unemployment deferment, too.
During the coronavirus crisis, federal student loan borrowers can be placed on automatic forbearance. No payments are required and no interest accrues until September 30, 2020. Under normal circumstances, however, unemployment deferment isn’t automatic and you must meet certain requirements to qualify for it.
Who is eligible for unemployment deferment?
Unemployment deferment is available for eligible borrowers with Direct Loans, FFEL Loans and Perkins Loans.
You must either be receiving unemployment benefits or be looking for, and unable to find, full-time work. That’s defined as a job you do for at least 30 hours weekly that’s expected to last at least three consecutive months. If you’re working part-time, you may still qualify.
However, for all loans except Perkins Loans, you won’t be eligible if you’ve turned down any full-time employment even if you were overqualified. You must register with a temporary placement agency, employment agency, or job placement office near you. And you need to make at least six attempts over six months to find work or deferment won’t be an option for any loans but Perkins Loans.
How do you apply for unemployment deferment?
Unemployment deferment isn’t automatic. You must apply with your loan servicer. The form to make your request is available on the U.S. Department of Education website. When completing it, you’ll need to provide detailed information including the following:
- Your Social Security number
- Your name and address
- Your telephone and email
- Whether you’re receiving unemployment benefits
- Whether you’re diligently seeking work and have made at least six attempts to find a job over the past six months.
- Whether you’ve rejected offers of full-time work
- Whether you’ve registered with employment agencies
- A certification that the form is correct and you understand the deferment rules
- When you want your deferment to start
Your servicer may also require documentation, such as an unemployment check.
How long can you defer payments?
Deferment ends on the earlier of three possible dates:
- Six months after the start of your deferment (or 12 months for Perkins Loans)
- When you’ve used up your maximum eligibility for (unemployment deferments are available for up to three years)
- When you become ineligible for some other reason
When deferment ends for Perkins Loans, there’s a six-month grace period before repayment begins.
Do your student loans accrue interest when your payments are deferred?
For unsubsidized loans, interest accrues during unemployment deferment. If you don’t make payments that cover it, interest will capitalize (be added onto the principal balance). You’ll end up paying interest on that interest so monthly payments will be higher and repayment will be more expensive.
Interest doesn’t accrue on Direct Subsidized or Subsidized Stafford Loans, Perkins Loans, or the subsidized portion of Direct Consolidation or FFEL loans.
Use our Cost of Deferment Calculator to evaluates the impact of interest capitalization at the end of a deferment or forbearance on the monthly loan payment and the cost of the loan, assuming that the loan payments are re-amortized after the deferment or forbearance.
Does your deferment period count towards loan forgiveness?
The time when your student loan is deferred doesn’t count towards payments required to qualify for Public Service Loan Forgiveness or forgiveness through income-driven plans. You may want to apply for income-driven repayment instead to get loans forgiven more quickly.
Do private lenders offer unemployment deferment?
Policies among private student loan lenders vary but many do allow you to pause payments. Some offer forbearance so you can pause payments but interest continues accruing. The maximum forbearance time is usually shorter. Call your lender to find out what your options are.
Many private student loan lenders are offering options to pause payments during the coronavirus crisis.
There are other options than just an unemployment deferment. These include:
Income Driven Repayment Plans: If you don’t qualify for an unemployment deferment, you could enroll in an income-driven repayment plan. These plans calculate your monthly payment based on your family size and income. Your payment could even be $0.
Economic Hardship Deferment: You may qualify for an economic hardship deferment if you are receiving federal or state public assistance, such as Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Food Stamps/Supplemental Nutrition Assistance Program (SNAP) or state general public assistance. You may also qualify if you are working full time (30 or more hours a week), but your income is less than or equal to the federal minimum wage ($7.25 per hour) or their income is less than or equal to 150% of the poverty line for the borrower’s family size and state. Some private lenders also offer an economic hardship deferment but qualifications vary by lender.
Forbearance: You may be able to request a forbearance, depending on your specific loan. For federal loans during a forbearance, interest isn’t paid for as it is for some loans during deferment.