For a more in-depth look at what happens when you don’t pay, read this article.
What Do I Do With My Loans While I’m Unemployed?
You’re going to want to talk to your servicer, but it’s a good idea to come to that conversation prepared. Being familiar with your options ahead of time will help you choose the right one for your situation
If you don't know what your options are, you're not going to know what to ask for when you talk to your loan servicer or if you do it yourself.
Specifically, if you call your loan servicer and say you can't pay your loans because you're unemployed, they may offer you and option like a deferment or forbearance. But that might not be the best option (in fact, it's not).
In fact, the best option for your loans (if you're eligible) is to apply for an income-driven repayment plan. If you're unemployed, your monthly student loan payment could legally be $0 per month.
Think of this order when seeking help:
- Income-Driven Repayment
- Deferment
- Forbearance
Repayment Plan Options
Brace yourself. The following repayment plans can get confusing. We broke down the types of repayment plans, but this is not a comprehensive guide. The U.S. Department of Education has a handy calculator tool that lets you see payment estimates for each plan based on your specific loans.
We suggest checking that out to get an idea of what your payments will look like for the different plans. But even though the numbers may look good, the other terms may not, so take a look at the following information to get a feel for the payment plans.
However, if you're unemployed, income-driven repayment is going to be the plan you want to ask for. The reason? Income-driven repayment plans include loan forgiveness, so if you experience years of low income, your loans will eventually be forgiven. Second, income-driven repayment plans count towards Public Service Loan Forgiveness. So, if you become employed in public service in the next few months, you can start working towards loan forgiveness as well.
Income-Driven Repayment
Income-driven repayment (IDR) plans base your payment amount on your income and family-size. Then after 20–25 years of payments, any remaining balance will be forgiven. When you’re unemployed, you might be able to score a $0 payment, but don’t let that excite you too much.
There are a couple things you should consider before jumping into an IDR plan. Anytime you increase your loan term, you’ll pay more in interest over the life of the loan.
If you make enough money down the road to pay off your total loan balance before your loans would be forgiven, you will end up paying more because of interest in the IDR than you would have in the Standard 10-year plan.
Income-driven plans require annual paperwork as well. Since payments are based on your income, you are expected to report your income to the Department of Education each year. If you miss the deadline, your loans will go back to a Standard plan and all accrued interest will be tacked onto your loan balance.
If you choose to enroll in one of the available IDR plans, we suggest keeping track of recertification deadlines yourself. We also recommend paying more than the minimum payment whenever you can.
The quicker you pay it off, the less interest you pay on it and — surprise — the sooner you can stop paying.
Here are some of the income-driven repayment options, with some basic pros and cons: