Reduced Income or Lost Your Job? Do This with Student Loans

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Zina Kumok

By Zina Kumok

April 21, 2020

As the COVID-19 outbreak reaches its boiling point, millions of Americans are facing a new and frightening situation – and I’m not talking about contracting the virus. I’m talking about a total or partial loss of income, with no immediate hopes of replacing it.

For anyone paying back student loans, this is a nightmare scenario. Many student loan borrowers were already struggling to make their payments before the current crisis, and it’s very difficult to predict when the economy will start to ramp up again. If you have other debts, like a mortgage or car payment, things are probably looking pretty bleak right about now.

Thankfully, both federal and private loan borrowers have options to mitigate the impact of this once-in-a-lifetime event. If your income was just reduced because of the Coronavirus, here’s what you should do.

File for Unemployment

The first step borrowers should take is to file for unemployment. Even if you’re still working part-time or are furloughed, you may still be eligible for unemployment benefits. Thanks to the recent stimulus package passed by Congress, even self-employed and gig economy workers are now eligible for unemployment.

Filing for unemployment has always been difficult, but recent demand has made it even harder. Unemployment phone lines and websites are operating well beyond capacity, with many applicants reporting multiple hours on hold.

Don’t give up. People have had success by calling during off-peak hours or using different web browsers to apply, like Safari or Microsoft Edge. As more people are processed, this temporary slowdown should start to subside.

If you can stay afloat for a little while longer, in time you should get the support you need. Even if it takes weeks to be approved, the payment you eventually receive will usually be backdated to your last day of full employment. That means you’ll receive benefits for every day of work you missed up until that point.

Consider Your Student Loan Options

The recent stimulus package automatically paused most federal student loan payments from March 13 until September 30. That means you’re not required to make federal loan payments on qualifying loans until September 20, 2020, and interest is not accruing, but you should start thinking about what to do when that reprieve ends.

If you made a payment to your federal student loans on or after March 13th, you can call your lender and request a refund.

If you’re still underemployed or furloughed after September, you may be eligible for an unemployment deferment or an economic hardship deferment.

Borrowers can qualify if they earn less than 150% of the federal poverty guidelines, which can be found here. You may also be eligible if you’re on government assistance benefits or a member of the Peace Corps program.

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.

Switch to Income-Based Repayment

If you are unable to defer student loans with an economic hardship deferment or unemployment deferment, there are repayment plans for federal loans. Borrowers currently on the standard repayment plan can switch to an extended plan, like the revised Pay What You Earn (REPAYE) plan or the Income-Based Repayment (IBR) plan.

With these plans, monthly payments are based on income. If you’ve been furloughed or reduced to part-time work, you may not have to pay anything.

These programs extend your repayment term from 10 years to 20 or 25 years, so you’ll end up paying more interest than with the standard plan. After qualifying payments after 20 or 25 years, the remaining balance is forgiven, but it is taxed as income.

Once you return to full-time work, you should switch back to the standard plan if you can afford it.

Call Your Private Lender

Some private lenders are offering special deferment programs for borrowers affected by the pandemic. Unlike federal loans where deferment is automatic, you have to call or apply for these programs online.

It’s best to contact your lender before missing any payments because some programs are only available to borrowers in good standing. You should also call before your next due date in case they let you skip that payment.

Each lender has its own rules on eligibility, length of deferment and what happens to the deferred amount. Thirty to 60 days of deferment seems to be the standard, but others may provide longer programs.

A good place to start:

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