Losing a job is a nightmare for many. After all, stability comes from being steadily employed at a job that pays sufficiently. But getting laid off at work can be a greater ordeal if you have a heavy burden of student loans on your back. Finding a source of income to cover all your basic expenses such as accommodation, food, etc. in itself will be challenging if you do not have a job that pays. Staying on top of your student loan repayments in such situations could be harder.
Annually, about 15% of employees get sacked or discharged from their designations. So it is not something very uncommon.
Keeping yourself prepared for the possibility of losing your job is something you should do.
You may have to think about alternative repayment plans or want to pause your payments altogether.
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Federal Student Loans
The following are some things you are advised to do if you have federal student loans and have lost your job.
Contact your loan servicers
The first thing that you might want to do is contact your student loan provider and inform them of your situation. Enquire if they can secure a break from repayments for you. This pause can help you in case your search for the next job takes longer than you expected.
Look for Income-Driven Repayment(IDR) plans
This is preferable than deferment or forbearance on your student loans. These plans calculate your monthly payments based on how much you earn. A certain percentage of your income will be expected as monthly payments. So, if you are unemployed and are making no money, your payments may be as low as $0. The main IDR plans are Income-Based Repayment(IBR), Pay As You Earn(PAYE) and Revised Pay As You Earn(REPAYE).
These plans also have their own special perks. Making payments on IDR plans can count towards student loan forgiveness. After making timely payments for a period of 20 or 25 years, your loan will be forgiven. So regardless of whether you are aiming for student loan forgiveness, adopting IDR plans during unemployment can benefit you greatly.
Income-Driven Repayment plans can help you avoid interest capitalization. If your payments were high when you had a job, you could get this fixed simply by contacting your servicer and explaining your situation to them. This will make them alter your payment amount to $0.
Private Student Loans
With private student loans, there is no one way in which lenders handle your loan if you lose a job. Different people have different finances and terms that they are under. This applies for lenders as well. Different private student loan establishments come with their own terms, conditions and procedures. Regardless, there are some things that you are advised to do.
Contact your loan servicer
Start by getting in touch with your student loan servicer. Explain your situation. Enquire if your lender is willing to offer deferment or forbearance on your loans. Enquire your servicer about different programs available that may benefit your situation. This is also where customer reps could end up playing a role more important than we assume. Some reps are often more knowledgeable and informative.
Explore lender-specific programs
Certain lenders have programs available that could help borrowers during hardship. Some lenders such as Sallie Mae and Navient offer programs that reduce interest rates on student loans. This can drastically reduce your monthly payments. SoFi, for instance, goes the extra mile to offer career guidance and development services. These could help you find a new, better job.
Remember the big picture
If your unemployment looks like a brief hitch, you might want to try and continue making payments. Otherwise, talk to your lender and arrive at the best possible arrangement for your current situation.
Some other things you could do if you got laid off
Seek Deferment or Forbearance
Deferment and forbearance on your student loans are available to borrowers of both federal and private student loans. During a period of deferment or forbearance, you are not required to make any payments on your student loans.
Deferment is preferred over forbearance because interest is mostly not charged on federal subsidized student loans (this is not the case for federal subsidized and private student loans) during a period of deferment.
With forbearance, however, your interest will continue to accrue even though you are not expected to make any payments.
With private student loans, regardless of whether forbearance or deferment, interest will continue to accrue.
Make payments on your interest if you can
It is often advisable to make payments on your interest since even during deferment and forbearance, interest continues to accumulate on unsubsidized and private student loans. If you can not afford to make full payments, try your best to make payments towards the interest that gets accrued. You may even choose to make payments towards only the loan with the highest interest rate. Often private student loans have higher interest rates than federal student loans. Making payments towards your interest will ensure that your loans do not grow to a massive amount during your unemployment.
Utilize your student loan resources
Companies like SoFi offer programs that can help borrowers improve their careers and find better jobs. Talk to your lender about such plans and programs that may be available and take advantage of them.
Getting fired or laid off from work can be very distressing. Inflow of cash will be limited and you are likely to find yourself unable to make payments on your student loans. But it is very important for you to take some necessary actions to make sure your loans are not at risk. You have to attend to them since ignoring your student loans can be very risky, especially since you are unemployed and your credit score can not afford to take a hit.