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If you have a significant amount of student loan debt, you might have frequent nightmares about losing your job. But dealing with your student loans if you find yourself unemployed isn’t as scary as you might think.
In fact, all federal student loans and some private student loans have protections that may be able to help you when you’re between jobs or when you face other kinds of financial strain like illness or disability.
You can check out our guide to options you have if you can’t pay student loans for more help.
1. Call Your Student Loan Provider
The first thing you should do when you lose your job is call your student loan provider and let them know about the situation. If you explain what has happened they will be able to help you find a way to get a break on your payments until you find a new job.
By setting up a way to get a break on your loans while you’re waiting for your next gig, you’ll be prepared in case the job search takes longer than expected.
2. Apply For Deferment or Forbearance
Your student loan provider will likely counsel you to apply for deferment or forbearance. These are options applicable to all federal loans and some private student loans.
When your loans are in deferment or forbearance, you will not have to make any student loan payments.
Student loan deferment is usually better than student loan forbearance because you won’t be charged interest on your federal subsidized loans (you will still be charged interest on federal unsubsidized and private student loans) while they’re in deferment. If you don’t qualify for deferment, your student loan servicer may still grant you forbearance. With forbearance, you may be able to stop making payments or reduce your monthly payment for up to 12 months – however, interest will continue to accrue on all loans. With private loans, you will always be charged interest.
3. Pay Interest On Your Loans (If You Can)
Because interest continues to accumulate on your unsubsidized loans and private student loans while they’re in forbearance or deferment, you might decide that it makes sense to pay interest on your loans during that period. If you can only afford to pay part of the accumulated interest you should direct your payments to the highest interest loans. In many cases, private student loans will have higher interest rates vs. loans offered by the Department of Education. This will ensure that when you start paying back your loans again they won’t be worth more than before you lost your job. You can potentially use money from an emergency fund to cover these costs.
4. Use Your Student Loan Resources
Some student loan refinance companies offer employee assistance programs. For example, SoFi offers borrowers career services including things like job search counseling. Check with your lender to see if they have something similar and be sure to take advantage of it!
How To Prepare If You Know It’s Coming
If you are given advance notice that you will be fired or laid off, there are things you can do to prepare for the trials ahead. The first thing you should do is create an emergency fund if you don’t have one already. Most experts suggest you keep enough money in your emergency fund to cover at least 3 to 6 months worth of expenses. If you factor in your interest payments into your emergency fund, you can likely emerge from unemployment without having lost any ground on your student loan repayment!
Author: Dave Rathmanner