Student Loans During Unemployment: Your Options and Rights

Losing your job doesn't mean you have to default on your student loans. There are multiple options available to help you manage payments during unemployment. This guide covers federal and private loan options, how to apply, and strategies to protect your financial future.

Immediate Steps After Job Loss

Don't Ignore Your Loans

The worst thing you can do is stop paying without taking action:

• Missing payments damages your credit
• Interest continues to accrue
• You could go into default (serious consequences)
• Options are available—use them

Contact Your Loan Servicer

Reach out to your loan servicer immediately:

• Explain your situation
• Ask about relief options
• Request written confirmation of any agreements
• Keep records of all communications

Federal Student Loan Options

1. Income-Driven Repayment (IDR) Plans

Best option for most people. IDR plans set your payment based on income:

Available plans:

• SAVE (Saving on a Valuable Education) - newest, most generous
• PAYE (Pay As You Earn)
• IBR (Income-Based Repayment)
• ICR (Income-Contingent Repayment)

How it helps during unemployment:

• $0 income = $0 monthly payment
• Payments are 5-10% of discretionary income
• Recalculate annually or when income changes
• Forgiveness after 20-25 years of payments

To apply:

1. Go to StudentAid.gov
2. Submit IDR application
3. Provide income documentation (or certify $0 income)
4. Servicer processes and confirms new payment

Key benefit: Months with $0 payments still count toward forgiveness.

2. Unemployment Deferment

Pause payments temporarily while unemployed:

Eligibility:

• Receiving unemployment benefits, OR
• Working less than 30 hours per week while seeking full-time work

Duration:

• Up to 36 months total over the life of your loans
• Can be used in increments

What happens during deferment:

• Subsidized loans: No interest accrues
• Unsubsidized loans: Interest continues to accrue
• No payments required

To apply:

• Contact your loan servicer
• Complete unemployment deferment form
• Provide documentation (unemployment benefit statement, etc.)

3. Economic Hardship Deferment

If you don't qualify for unemployment deferment:

Eligibility:

• Income below 150% of poverty line
• Receiving federal or state assistance
• Working full-time but earning below minimum wage equivalent

Duration: Up to 36 months total

4. General Forbearance

Last resort option when you don't qualify for other programs:

How it works:

• Servicer grants temporary pause on payments
• Interest accrues on ALL loan types
• Discretionary—servicer must approve

Duration: Up to 12 months at a time, up to 36 months total

Why it's not ideal:

• Interest capitalizes (adds to principal)
• Increases total loan cost
• Doesn't count toward forgiveness

Comparison of Federal Options

Option	Payments	Interest Accrues	Counts for Forgiveness
IDR ($0 payment)	$0	Yes	Yes
Unemployment Deferment	$0	Subsidized: No / Unsubsidized: Yes	No
Forbearance	$0	Yes, on all loans	No

Recommendation: Use IDR with $0 payments if possible—it counts toward forgiveness.

Special Situations

Public Service Loan Forgiveness (PSLF)

If you were working toward PSLF before losing your job:

Unemployment impact:

• You must work full-time for a qualifying employer to earn credits
• Unemployment months don't count toward the 120 payments
• Your previous qualifying payments still count

Strategy if laid off from public service:

• Switch to IDR immediately
• Continue making $0 payments while unemployed
• Credits resume when you return to qualifying employment

Parent PLUS Loans

Different rules apply:

Options:

• ICR plan (only IDR option for Parent PLUS)
• Consolidate into Direct Consolidation Loan for more IDR options
• Unemployment deferment
• General forbearance

Grad PLUS Loans

Same options as other federal loans:

• All IDR plans available
• Unemployment deferment
• Economic hardship deferment

Private Student Loans

Private lenders have fewer protections, but options exist:

Contact Your Lender Immediately

Possible accommodations:

• Temporary reduced payments
• Interest-only payments
• Short-term forbearance
• Modified repayment terms

Common Private Loan Options

Hardship forbearance:

• Most lenders offer some form
• Usually limited duration (3-12 months)
• Interest continues to accrue
• Not guaranteed—lender discretion

Rate reduction programs:

• Some lenders temporarily reduce interest
• May require demonstrating hardship
• Ask specifically about this option

Refinancing consideration:

• If you have a co-signer with good credit
• May get better terms
• Caution: Don't refinance federal to private (lose protections)

If You Can't Get Relief

Options when private lender won't help:

• Prioritize federal loans first (better protections)
• Pay minimums to avoid default
• Consider credit counseling
• Bankruptcy (rarely dischargeable, but possible in extreme hardship)

Strategies to Minimize Damage

Priority Order for Limited Funds

If you can only make some payments:

1. Housing and utilities - Keep a roof over your head
2. Food and essentials - Basic survival
3. Private student loans - Fewer protections, harder to recover
4. Federal student loans - Use deferment/IDR instead of paying
5. Credit cards - Unsecured debt, last priority

Protect Your Credit

During unemployment:

• Use official relief options (won't hurt credit)
• Don't just stop paying (hurts credit)
• Keep servicer informed
• Monitor credit reports

Document Everything

Keep records of:

• All calls with servicers (date, person, what was said)
• Applications submitted
• Approvals received
• Any errors or problems

When You Return to Work

After Finding a New Job

For IDR plans:

• Recertify income when required (usually annually)
• Payment will adjust based on new income
• You can recertify early if income drops again

For deferment/forbearance:

• Notify servicer when you return to work
• Resume payments
• Consider paying extra to address accrued interest

Addressing Accrued Interest

If interest capitalized during forbearance:

• Pay more than minimum if possible
• Target interest before principal
• Consider refinancing if you have strong income/credit

Common Questions

Will using deferment hurt my credit?

No. Official deferment and forbearance programs don't negatively impact your credit. What hurts your credit is missing payments without being in an official program.

Can I get unemployment AND have my loans in deferment?

Yes, absolutely. Unemployment benefits and student loan deferment are completely separate programs.

Do I have to prove I'm looking for work?

For unemployment deferment, you need to show you're receiving unemployment benefits OR seeking full-time employment. IDR just requires income documentation.

What if I was already on an IDR plan?

Great—you may already have $0 payments if your income dropped. Recertify your income to ensure payments reflect your current situation.

Should I keep paying if I can afford it?

It depends:

• If on IDR seeking forgiveness: $0 payments still count—paying more doesn't help
• If trying to pay off loans: Keep paying if you can afford it
• Priority: Emergency fund first, then consider loan payments

What happens if I default?

Federal loan default consequences:

• Entire balance due immediately
• Wage garnishment (up to 15%)
• Tax refund seizure
• Credit damage
• Loss of future federal aid eligibility
• Collection fees added

Avoid default at all costs—relief options exist.

Resources and Contacts

Federal Loans

StudentAid.gov: Primary resource for federal loan information

• IDR application
• Servicer lookup
• Deferment forms

Federal Student Aid Information Center: 1-800-433-3243

Your Loan Servicer

Common federal servicers:

• Mohela
• Nelnet
• Aidvantage
• EdFinancial
• OSLA

Free Help

Student Loan Borrower Assistance:

• Consumer Financial Protection Bureau (CFPB)
• State Attorney General offices
• Nonprofit credit counseling agencies

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Key Takeaways

1. Don't ignore your loans — Options exist, but you must act
2. IDR plans are best — $0 payments count toward forgiveness
3. Unemployment deferment is available — Up to 36 months
4. Contact servicers immediately — They can help if you communicate
5. Private loans have fewer options — Prioritize communication
6. Default is avoidable — Use relief programs
7. Document everything — Protect yourself with records

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Related Resources:

• Emergency Budget Planning →
• Unemployment Benefits Guide →
• Debt Management During Unemployment →
• First Week After Layoff →