Janice Lozano
Student loan debt is the second-highest consumer debt category after mortgages, with 20% of American adults with undergraduate degrees reporting outstanding student debt. If you are struggling to pay your student loans due to unemployment, there are several options to consider, such as deferment, forbearance, and income-driven repayment plans. Deferment allows you to temporarily postpone loan payments, and it is available for federal student loans and some private student loans. Forbearance is another option offered by lenders that lets you pause payments, but interest accrues during this period. Income-driven repayment plans set your monthly payments as a percentage of your income and family size. These plans may also offer loan forgiveness after a certain number of qualifying payments. It is important to explore these options to avoid negative consequences, such as a drop in your credit score, increased debt, and penalties.
| Characteristics | Values |
|---|---|
| Options for federal student loans | Deferment, Income-driven repayment (IDR) plans, Forbearance |
| Options for private student loans | Deferment, Forbearance, Alternative repayment plans |
| Consequences of not paying student loans | Drop in credit score, Loan default, Penalties, Increased debt due to accruing interest |
| Factors affecting deferment eligibility | Loan type, Employment status, Full-time/part-time work, Recent job offers |
| Factors affecting interest accrual during deferment | Loan type (subsidized/unsubsidized), Lender |
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What You'll Learn
Deferment options for federal student loans
If you are unable to pay your student loans due to unemployment, you may be eligible for a deferment, which allows you to temporarily postpone making payments for a set amount of time. Deferments are available for federal student loans but are not always offered for private student loans.
To apply for a deferment on your federal student loans, contact your loan servicer. You can find out who your loan servicer is by visiting the U.S. Department of Education Federal Student Aid website. You can also get the application form online, and there is no fee to apply.
It is important to note that you must continue making monthly loan payments until you are notified that your deferment has been approved. If you simply stop making payments, there may be negative consequences, such as a drop in your credit score.
The types of deferment, forbearance, and repayment options available to you will depend on your lender and the specific loan product you have. If you have a subsidized loan, which includes Federal Perkins loans, Direct Subsidized loans, and Subsidized Federal Stafford loans, you will not be charged interest during the deferment period. However, if you have unsubsidized loans, such as Direct PLUS loans or FFEL PLUS loans, interest will accrue during the deferment, and you will need to pay this interest.
If you do not qualify for a deferment, you may still be eligible for a forbearance, which allows you to pause payments at the discretion of your lender. Interest accrues during forbearance, so it may not be a suitable long-term solution. Alternatively, you may want to consider enrolling in an income-driven repayment (IDR) plan, which ties your payments to your income and family size. These plans can help make your payments more affordable, and some offer the possibility of loan forgiveness after a certain number of years of qualifying payments.
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Income-driven repayment plans
If you are unable to pay your student loans due to unemployment, there are several options available to you. One option is to apply for a deferment, which allows you to temporarily postpone making payments on your student loans. If your loans are subsidized, including Federal Perkins loans, Direct Subsidized loans, and Subsidized Federal Stafford loans, you won't be charged interest during the deferment period. However, if you have unsubsidized loans, such as Direct PLUS loans or FFEL PLUS loans, interest will accrue, and you will have to pay it during or after the deferment period. To apply for a deferment, contact your loan servicer or visit the U.S. Department of Education Federal Student Aid website.
Another option to consider is enrolling in an income-driven repayment plan (IDR). IDR plans set your monthly payments as a percentage of your discretionary income, rather than a fixed payment for a set number of years. These plans often have longer repayment terms, which can lower your monthly payments but may result in higher total loan costs over time. Under existing IDR plans, borrowers with income below a certain threshold may have a "$0 payment" option. However, most IDR plans are currently facing legal challenges, and a new Repayment Assistance Plan (RAP) is expected to be introduced, which will include a minimum monthly payment of $10.
If you are married and both you and your spouse have federal loans, enrolling in an IDR plan may make your overall payments more affordable. Additionally, if you work in public service, you may be eligible for Public Service Loan Forgiveness (PSLF). To receive this benefit, you must enroll in an income-driven repayment plan and certify all your qualifying employment.
It's important to continue making monthly payments on your student loans until you are approved for a deferment or another option. Stopping payments without approval can lead to negative consequences, such as a drop in your credit score.
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Forbearance and accruing interest
If you are unemployed and unable to pay your student loans, you may be able to apply for a deferment or forbearance. A deferment allows you to temporarily postpone making payments on your student loans for a set amount of time. Forbearance is a temporary postponement or reduction of your student loan payments because you are experiencing financial hardship.
Interest accrual during a deferment depends on the type of loan. If your loans are subsidized (including Federal Perkins loans, Direct Subsidized loans, and Subsidized Federal Stafford loans), you are not charged interest during the deferment. If you have unsubsidized loans, such as Direct PLUS loans, you will be charged interest during the deferment period. This interest is typically capitalized, meaning it is added to the principal balance of your loan. However, you have the option to pay the interest during the deferment period.
Forbearance works differently depending on whether your loans are federal or private. For federal student loans, your loan servicer can grant forbearance for up to 12 months at a time, and you must apply for it. Interest accrues on all loans during forbearance, including federal subsidized loans. While interest will not be added to the principal balance of Direct Loans, it may be added to the principal balance of other federal loans not owned by the Department of Education.
For private student loans, the terms associated with postponing payments are based on your contract and applicable laws and may vary for each servicer. Interest may be charged during this time.
It is important to note that you must continue making monthly loan payments until you receive notification that your deferment or forbearance application has been approved. Stopping payments before approval can lead to negative consequences, such as a drop in your credit score.
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Loan forgiveness
If you are unable to pay your student loans due to unemployment, there are several options available to you, including deferment, forbearance, and income-driven repayment plans. These options can help you avoid default and negative consequences such as a drop in your credit score.
Deferment
A deferment allows you to temporarily postpone making payments on your student loans for a set period of time. If you have subsidized federal loans, such as Federal Perkins loans, Direct Subsidized loans, or Subsidized Federal Stafford loans, you will not be charged interest during the deferment period. However, if you have unsubsidized loans, such as Direct PLUS loans or FFEL PLUS loans, interest will accrue, and you will have to pay it during or after the deferment period. To apply for a deferment, contact your loan servicer or visit the U.S. Department of Education Federal Student Aid website. Unemployment deferments are available if you are currently unemployed or underemployed, working less than 30 hours a week in a temporary job.
Forbearance
Student loan forbearance allows you to pause payments at the discretion of your lender. Interest accrues on all loans during forbearance, so it is not a long-term solution, but it can provide temporary relief. If you borrow a loan on or after July 1, 2027, you may be eligible for a temporary forbearance of up to nine months in a 24-month period.
Income-Driven Repayment (IDR) Plans
IDR plans, such as SAVE (formerly REPAYE), IBR, ICR, and PAYE, tie your monthly loan payments to your income and family size. These plans offer the possibility of loan forgiveness after a certain number of years of qualifying payments. Depending on the plan, your loan may be forgiven after 20 or 25 years of repayment. To apply for an IDR plan, you can start an online application to see which plans you are eligible for and the estimated monthly payments.
It is important to note that if you simply stop making payments on your student loans without applying for an alternative arrangement, you may face negative consequences such as a drop in your credit score.
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Extending repayment terms
If you are struggling to make your student loan payments, you may be eligible for an extended repayment plan. This option is available for federal student loans and allows you to extend the term of your loan, reducing your monthly payments. The standard repayment plan for federal loans is 10 years, whereas an extended repayment plan can give you up to 25 years to repay your loan.
To be eligible for an extended repayment plan, you must have more than $30,000 in federal student loans. You can choose to pay the same amount each month or opt for graduated payments that start low and increase every two years. While extending your repayment term will lower your monthly payments, it will result in you paying more interest over the life of the loan.
Income-driven repayment (IDR) plans are another option for those struggling to make payments. These plans tie your monthly payments to a portion of your income and extend the loan term to 20 or 25 years. Payments can be as low as \$0 if you are unemployed or underemployed. IDR plans also offer loan forgiveness for any remaining debt at the end of the term.
It is important to note that extended repayment plans do not offer loan forgiveness. You will pay off the loan completely by the end of the extended repayment term. Additionally, there may be some restrictions to enrolling in an extended repayment plan, such as not qualifying for loan forgiveness programs. Be sure to contact your loan servicer to discuss your specific situation and explore all your options.
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Frequently asked questions
If you can't pay your student loans due to unemployment, you may be eligible for a deferment or forbearance, which allows you to temporarily postpone your loan payments. You can apply for a deferment by contacting your loan servicer, and it's important to continue making payments until you're approved. Alternatively, you can explore income-driven repayment plans that calculate payments based on your income and family size.
Deferment allows you to temporarily stop making payments on your student loans without accruing interest if your loans are subsidized. For unsubsidized loans, interest may accrue during the deferment period and be added to your principal balance. Forbearance also allows you to pause payments, but interest continues to accrue on all loans, increasing your total debt over time.
Some income-driven repayment (IDR) plans include SAVE (formerly REPAYE), IBR, ICR, and PAYE. These plans use your income and family size to determine your monthly payments and may offer loan forgiveness after a certain number of qualifying payments. However, it's important to note that the availability and specifics of these plans may change over time due to updates and legislation.
