Job loss, now what: How to handle student loans
Steps on managing student loans after loss of job.
One of the biggest mistakes that people make after losing a job is not contacting those that they owe money. Some may assume that they will be back on their feet with a new job and will be able to meet their obligations. Unfortunately, this does not always work out. Student loans, in particular will almost never go away. As a result, taking steps to avoid going into default can be a good solution. Here are some steps to take if this situation should happen to you.
- Call the lender that services your student loans. This is a very important step even if you can’t afford to pay the student loan right away. The lender is often more willing to work with you if they know your situation. It is important to contact your lender right away. With federal loans, 30 days late means you are delinquent. If you do not pay for 90 days, the servicer will report your non-payment to the three major credit bureaus. However, by contacting your lender, they may be able to temporarily lower your payments or suspend your payments while you look for new employment.
- Apply for a deferment or forbearance on your loans. Deferment and forbearance are the two most common ways to deal with student loans you are unable to temporarily pay. They can only be applied to certain federal student loans. You can defer up to three years if you are either unemployed or underemployed (can only get part time work). During a deferment, the federal government will pay your interest on certain loans, while for other loans, the interest will accrue. Forbearance is similar to deferment, with the exception that your interest will accrue. You have to show hardship and it is only good for 12 months.
- Create a plan for job search. Put the plan into action and be realistic. Depending on your field/skill you should have an idea about how quickly you may find another job. Depending on the field and the circumstances of your job loss, you may find a job but with lower pay. In this case, consider applying for the many income-based repayment options available for student loans. Once you are back on your feet financially, you can eventually go back to the standard repayment schedule. Also, during this step, prioritize your needs and create a financial plan that is based on your current situation.
- Identify your long-term options. Though stressful, a job loss is a great opportunity to learn what resources are available to you to manage your student loans for the long-term as well as career assistance. Educate yourself on what repayment programs are available for student loans and include investigating refinancing and consolidations options. When job hunting, take advantage of your schools’ career resource centers. Also when searching for jobs, look for the phrase “employers who pay back student loans”. This can be helpful to minimize your total student loan debt.
Once you find new employment, contact your loan servicer and update your status. It is important to always keep good records. The more information you have for the lender, the better plan they are able to develop for you.
Finally, be responsible and stay positive! Remember, a degree makes you more marketable when seeking employment, However, even if you have not completed a degree, the coursework that you did complete most likely has given you skills that will help you land that new job.