Douglas Olsen
Dealing with student loan payments while unemployed can be stressful, but there are options to help you manage your debt. The options available to you depend on whether you have federal or private student loans. Federal student loans offer more standardized benefits, including deferment and forbearance, which allow you to temporarily postpone or reduce payments. You can also explore income-driven repayment plans, such as the Repayment Assistance Program (RAP), which bases monthly payments on your income. Private lenders may also offer temporary relief or alternative repayment plans, but interest may accrue during this time. Understanding the differences between federal and private loan options can help you make an informed decision that suits your financial situation.
How to pay off student loans if unemployed
| Characteristics | Values |
|---|---|
| Forbearance | Your loan holder permits you to stop making payments for a while or temporarily make reduced payments. |
| Deferment | Allows you to temporarily postpone making student loan payments for a set amount of time. |
| Alternative payment plans | Income-driven repayment plans base your monthly payments on your income and household size. |
| Student loan delinquency | If you are a few days late on your payment, your loans become delinquent until you pay the past-due amount or change your payment plan. |
| Student loan default | If you continue to make no payments, your loans will officially go into default. This happens after 270 days of non-payment for most federal student loans and typically after 90 days of non-payment for private loans. |
| Loss of future earnings | You could lose out on earnings until your loan is paid. For instance, your tax refund, federal benefit payments and wages could all be garnished to pay off your outstanding student loan debt. |
| Loss of credit score | Loan servicers report late payments and defaults to credit bureaus, which means that your credit score will start to drop. |
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What You'll Learn
Income-driven repayment plans
If you're unemployed and struggling to pay off your student loans, you may want to consider enrolling in an income-driven repayment plan. These plans are designed to help borrowers who are facing financial difficulties by reducing their monthly payments based on their income and family size.
The federal government previously offered four income-driven repayment plans, including the Saving on a Valuable Education (SAVE) Plan, the Income-Based Repayment Plan (IBR), the income-contingent repayment plan (ICR), and the graduated repayment plan. However, due to legislative changes, only the IBR plan will remain available for existing borrowers after July 1, 2028. New borrowers who take out federal loans after July 1, 2026, will not have access to any income-driven repayment plans and will be limited to a standard repayment plan or the new income-based Repayment Assistance Program (RAP).
It's important to note that income-driven repayment plans are generally intended for borrowers with high student loan debt and low incomes or those who are unemployed. By enrolling in one of these plans, you can lower your monthly payments and avoid late payments and student loan defaults. Additionally, payments made under income-driven plans count toward Public Service Loan Forgiveness, which can forgive your remaining student loan debt after 10 years of eligible public service employment.
Before enrolling in an income-driven repayment plan, it's recommended to use Federal Student Aid's Loan Simulator to understand your monthly bills, overall costs, and forgiveness amounts under each plan. Additionally, if you have private student loans, you should contact your lender to discuss your options, as they may offer temporary relief measures such as deferment or reduced payments during periods of unemployment.
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Deferment and forbearance
Deferment
A deferment allows you to temporarily stop making student loan payments for a set amount of time. If you have subsidized federal student loans or Perkins loans, interest will not accrue during this period, so the amount you owe at the end of the deferment period will remain the same.
To qualify for a deferment, you must meet certain criteria, such as being unemployed, receiving federal or state assistance, or undergoing medical treatment. If you have federal student loans and are unemployed, you can apply for a deferment of up to three years. However, the One Big Beautiful Bill Act (OBBBA) has eliminated unemployment and economic hardship as qualifying reasons for deferment for loans taken out after July 1, 2027.
Forbearance
Forbearance is another option to temporarily postpone or reduce loan payments. Unlike deferment, interest will continue to accrue during the forbearance period, and you will eventually have to pay this interest. Forbearance is typically a better option if you don't qualify for deferment and your financial challenges are temporary. Lenders that offer forbearance usually limit these periods to a few months at a time and a few years over the life of the loan.
To apply for either deferment or forbearance, you will need to contact your loan servicer and provide the necessary documentation. It is important to continue making loan payments until you receive confirmation of approval for relief.
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Reduced monthly payments
If you are unemployed and struggling to pay off your student loans, you have a few options to reduce your monthly payments. Firstly, it is important to note that you need to keep making your monthly payments until you are granted forbearance or another form of relief. Missing payments can negatively impact your loan status and credit score.
Deferment
One option to reduce your monthly payments is to apply for a deferment. A deferment allows you to temporarily pause your student loan payments for up to 36 months, and you must be receiving unemployment benefits or seeking full-time work to qualify. Interest may or may not accrue during this time, depending on the type of loan you have.
Forbearance
Forbearance is another option to reduce your monthly payments. During forbearance, your loan holder permits you to stop making payments or temporarily make reduced payments. However, interest will continue to accrue, and you will eventually have to pay the accrued interest. Forbearance is typically limited to a few months at a time and is not a good long-term solution.
Income-Driven Repayment Plans
Income-driven repayment plans are a good option to reduce your monthly payments. These plans base your payment amount on your income and family size, and your monthly payment could be as low as $0 if you are unemployed. After 20 to 25 years of payments, any remaining balance will be forgiven. However, keep in mind that extending your loan term will result in paying more interest over the life of the loan.
Repayment Assistance Plan (RAP)
The Repayment Assistance Plan (RAP) is an income-driven repayment plan that will take effect on July 1, 2026. Under RAP, monthly payments are based on a sliding scale from 1% to 10% of your adjusted gross income (AGI), with a minimum payment of $10.
Alternative Options
Some private lenders may allow you to temporarily postpone your payments or provide alternative repayment options, but they could charge interest during this time. Additionally, some lenders, like Earnest and Wells Fargo, offer rate reduction programs or loan modification programs that can lower your payments.
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Standard repayment plan
If you are unemployed and have student loans, you may be wondering what to do about your monthly payments. You are still required to make your student loan payments unless you request a specific form of relief from your lender. The options available differ based on whether you have federal or private student loans.
The standard repayment plan is one of the options available to borrowers who take out federal loans on or after a specified date. This plan offers a structured approach to repaying your student loans over a fixed period. Here are some key features and considerations for the standard repayment plan:
- Fixed Monthly Payments: The standard repayment plan typically involves equal monthly instalments over the loan term. The payments are calculated based on the total loan amount, including accrued interest, divided by the number of months in the repayment period. This means you'll have a consistent idea of what you will be paying each month.
- Repayment Period: Federal student loans under the standard repayment plan usually have a repayment period of 10 years. This means you'll be committed to making regular payments for a decade, ensuring your loan is repaid within a defined timeframe.
- Interest Accumulation: With the standard repayment plan, interest accumulates on your loan balance. The interest rate depends on the type of federal loan you have. The longer it takes to repay the loan, the more interest you'll pay overall. Federal loans with fixed interest rates can be advantageous in this regard, providing predictability.
- No Income Consideration: Unlike income-driven repayment plans, the standard repayment plan does not take your income or financial circumstances into account. This means that even if you are unemployed or experience a decrease in income, the payments remain the same.
- Predictable Repayment: This plan provides a straightforward and predictable repayment structure. You know exactly when your loan will be paid off, and there is no need to recertify your income periodically, as required by income-driven plans.
- Fewer Total Payments: Compared to extended or graduated repayment plans, the standard repayment plan often results in fewer total payments made over time. This can be advantageous if you want to become debt-free sooner and minimise the overall cost of borrowing.
Remember, if you are unemployed, you may have other options besides the standard repayment plan, such as requesting a deferment or forbearance, depending on your loan type and lender. It is important to understand the terms and conditions of your loan and explore the available alternatives to make an informed decision.
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Loan forgiveness
If you're unemployed and struggling to pay off your student loans, you may be eligible for loan forgiveness. Loan forgiveness is when the government helps you repay your loans, and in some cases, they may even forgive your entire remaining balance. Here are some ways you can benefit from loan forgiveness:
Income-Driven Repayment Plans (IDR)
IDR plans base your monthly payments on your income and family size. If you stick to an IDR plan, your remaining loan balance may be forgiven after a certain number of payments over 20 to 25 years. You can use a loan simulator to compare plans and see if you're eligible for an IDR plan.
Public Service Loan Forgiveness (PSLF)
If you work full-time for a government or not-for-profit organization, you may qualify for PSLF. This means that you repay your federal student loans under an IDR plan or a standard 10-year plan, and the remaining balance may be forgiven.
Teacher Loan Forgiveness
If you teach full-time for five consecutive academic years in certain schools serving low-income families, you may be eligible for forgiveness of up to $17,500.
Total and Permanent Disability (TPD) Discharge
If you have a disability that severely limits your ability to work, you may qualify for a TPD discharge. This means you won't have to repay your federal student loans. You will need to provide proof of your disability and may be subject to a post-discharge monitoring period.
Unemployment Deferment
Although not a direct form of loan forgiveness, an unemployment deferment allows you to postpone federal student loan payments for up to 36 months if you're receiving unemployment benefits or seeking full-time work. However, please note that this option will not be available for new borrowers after 2027.
It's important to remember that the availability of these options may depend on the type of loan you have (federal or private) and when you took out the loan. Be sure to explore the official websites and consult your loan servicer to understand the specific requirements and determine your eligibility for loan forgiveness.
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Frequently asked questions
Yes, you still need to make your student loan payments unless you request a specific form of relief from your lender.
Forbearance, deferment, and alternative payment plans are some of the options available. The options available differ based on whether you have federal or private student loans.
The best federal student loan repayment plan is the plan that works for you. You'll automatically start on the Standard Repayment Plan, but there are other options, such as the income-based repayment plan (IBR) or the new income-based repayment plan called the Repayment Assistance Program (RAP).
During a loan forbearance, your loan holder allows you to stop making payments or temporarily make reduced payments. You will eventually have to pay the interest that accrues during the forbearance. With a deferment, you can temporarily postpone making student loan payments for a set amount of time, and you may not be charged interest during this period.
There are several negative consequences that can occur if you don't pay your student loans while unemployed, including loan delinquency or default, late fees, and a lower credit score.
