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Handling Student Loans When You Don’t Have A Job

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Student loan debt is a serious financial burden for many people. If you’re unemployed, making your student loan payments might be impossible or unreasonably burdensome. This article explains what you can do to avoid harsh consequences for missing student loan payments if you’re unemployed.

Written by Attorney Thomas J. Pearson
Updated June 7, 2021

Student loan debt is a serious financial burden for many people. If you’re unemployed, making your student loan payments might be impossible or unreasonably burdensome. This article explains what you can do to avoid harsh consequences for missing student loan payments if you’re unemployed. If you’re unemployed and have student loans, you should consider all of your available options before missing payments and risking default or delinquency. This is because delinquency can have serious impacts on your credit score and even your bank account. 

Unemployment Deferment

Student loan borrowers can take advantage of programs that aren't available for other types of debt, like credit card debt. One option you may want to look into is deferment. Deferment allows borrowers to stop making payments for a period of time. To be eligible for deferment, the borrower must be unemployed or fall into another eligibility category. Other types of eligible categories include the following: cancer treatment, economic hardship, and graduate fellowship.

Deferment options are different for federal student loans and private student loans. Federal student loans are student loans guaranteed by the United States government. Private student loans are loans extended through a non-government, private company like a bank or other financial institutions.

Federal Student Loan Deferment

If you have federal student loans and become unemployed,deferment is worth exploring. Federal student loan deferment allows you to stop paying loans for up to three years, or 36 months. But going into deferment isn’t a one-step process. Once you enter deferment, you must continue to apply and renew your eligibility. 

You’ll also have to show the student loan servicer that you meet all eligibility requirements initially. Generally, you’ll meet the eligibility requirements for Unemployment Deferment if you can show that you’re unemployed and are looking for work. But deferment isn’t automatic, and you can’t stop making payments until your loan servicer approves your application.

If you’re not unemployed but still feel that you need to stop making loan payments, you can request Economic Hardship Deferment. You’re probably eligible for Economic Hardship Deferment if you’re receiving other government unemployment benefits, are working full-time but making less than 150% of the poverty guidelines for your family size, or are serving in the PeaceCorps. Still, you must apply with your loan servicer and prove your eligibility to receive deferment at all. So, it’s important that you don’t stop making loan payments until your deferment application is finalized and approved.

Going into deferment also has several downsides that you should consider carefully. If you’re working towards loan forgiveness, deferring your payments means you won’t complete your payments on time. Another important thing to consider is that many federal student loans will continue to accrue interest during deferment. In this situation, you could end up owing more after your deferment period than you did before.

Private Student Loan Deferment

Private student loans are not governed by the same rules as federal student loans are, so private lenders can set their own requirements for deferment. In general, private lenders don’t offer as many payment options as the Department of Education. Some private student lenders don’t offer any deferment options at all, while others are more flexible. If you’ve lost your job, contact your student loan lender as soon as possible to discuss your current payment plan and what kind of deferment or forbearance options may be available to you.

Forbearance For Student Loans 

If you don’t qualify for a deferment, you might be eligible for aforbearance. Forbearance is similar to deferment but has two major differences. For one, it’s easier to become eligible for forbearance. Second, most federal student loans accrue interest during forbearance, while only specific kinds accrue interest during deferment. During forbearance, interest capitalizes on all Direct Loans and Federal Family Education Loans (FFEL). Make sure that you know which types of student loans you have before choosing forbearance. With federal student loans, there are two types of forbearance: mandatory and general. 

Mandatory Forbearance

Mandatory forbearance is available to borrowers in specific circumstances. Those circumstances are:

  • Borrowers serving in an AmeriCorps position who have received a national service award;

  • Borrowers who qualify for the Department of Defense Student Loan Repayment Program;

  • Borrowers pursuing a medical or dental internship or residency program who meet specific requirements;

  • Borrowers actively serving in the National Guard but who are not eligible for military deferment;

  • Borrowers whose monthly loan payment is more than 20% of their total monthly gross income. This situation only allows for three years of forbearance;

  • Borrowers working in teaching who are eligible for teacher loan forgiveness.

Under mandatory forbearances, eligible borrowers must reapply every 12 months that they wish to continue forbearing their loans.

General Forbearance

General forbearance is different from mandatory forbearance in several ways. One important difference is that your loan servicer decides whether you’re eligible for general forbearance. To be eligible, you must be unable to pay your scheduled monthly loan payments based on financial difficulties, medical expenses, changes in employment, or other qualifying reasons.  

The second difference is that general forbearance is available for Direct Loans, FFEL loans, and Perkins Loans (Perkins Loans aren’t eligible for mandatory forbearance).

The last main difference is that general forbearance periods cannot last more than 12 months. If you’re still experiencing hardship after 12 months, you can apply for more forbearance time. However, there is a maximum of three years (or 36 months) of general forbearance no matter what. Even if you’re still experiencing hardship after three years you can’t continue to be approved for general forbearance.

Deferment vs. Forbearance

Forbearance is similar to deferment in important ways. Loan interest will accumulate and be added to your loan balance. If you’re looking to have your loans forgiven under a payment plan, payments made during forbearance won’t count towards your forgiveness payment plan. Also, private lenders have their own rules for forbearance and you’ll have to communicate with your private lender about their forbearance options. 

Because forbearance and deferment are so similar, it may be difficult to choose which option is best for you. When choosing between the two, you should consider why you can’t afford loan payments and which programs you’re eligible for. If you’re unemployed, unemployment deferment is probably the best fit, because it’s designed for borrowers struggling to find work. On the other hand, if you’re working but unable to make payments because of an unexpected large expense, you should see if you fit into one of the general forbearance categories like medical expenses or change in employment. You should look at all of the options and decide which program best suits your specific situation.

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Contact Your Student Loan Service Provider

Whether you’re considering deferment or forbearance, contacting your student loan servicer should always be the first step. You should discuss all of your repayment, deferment, and forbearance options with your student loan servicer before making any final decisions about your options. The servicer will be able to explain any options that are available to you. If you’re enrolled in an income-based repayment program already, find out if you can change the repayment amount rather than putting your loans into forbearance or deferment. Even if it takes a little bit of extra paperwork, getting a $0/month payment that counts towards your loan forgiveness program is better than a $0/month payment that doesn’t count for anything.

If you have federal student loans (or aren’t sure) and you’re looking for your loan servicer’s contact information, theFederal Student Aid website offers a list of loan providers and contact information. If you’re having trouble figuring out who your servicer is, you can also call the Federal Student Aid Information Center (FSAIC) at (800) 433-3242 to find the name of your servicer. Alternatively, you can review and even download your entire student loan file through the National Student Loan Data System

Make Monthly Payments With Unemployment Benefits

Borrowers receiving unemployment benefits can use those benefits to make student loan payments. If it’s financially possible to do so, it’s a good idea to make partial loan payments even during the deferment or forbearance period. This is because interest accrues during the period of deferment or forbearance. This interest is added to your  student loan balance. Because the interest is capitalized (added to your loan balance), making interest-only payments (when possible) can reduce the amount that you end up owing in the long-run.

Impact Of Not Making Interest Payments

It’s important to understand how interest capitalization can increase your loan balance. Here is an example of how this scenario works:

You have a $50,000 student loan balance with an interest rate of 7%. If you’re in forbearance for a year right when your payments become due, $3,500 of interest will accrue over that year of forbearance. If you don’t make any payments during forbearance, that $3,500 will be capitalized (added to your loan balance amount) to create a total balance of $53,500. Then, interest accrues on the higher amount and continues to capitalize. The next year, 7% of $53,500 ($3,745) is added to the loan balance for a total balance of $57,245. Over several years, student loan balances can balloon because of capitalization.

Again, because capitalization can lead to such significant consequences, it’s important to look intoall of your repayment options before going into forbearance or deferment.

Reduced Loan Payments

Forbearance and deferment aren’t the only ways to stop your student loan payments. With federal student loans, you can enter an income-based student loan repayment plan that calculates your payments based on your income. If your income is low enough, you might not need to make any payments under an income-based plan. Make sure you update your loan servicer as soon as you lose your job, so that you know what steps to take to update your monthly payment accordingly. 


Consolidation merges all of your different federal student loans into one federal student loan with one interest rate. This approach allows you to make one payment per month for one student loan instead of needing to keep track of the individual loans. 

Private student loans don’t offer consolidation in the same way that federal loans do. But your private loan servicer might be able to do something similar to consolidation to make it easier to manage your payments. You should reach out to your private servicer to see if they offer any services similar to consolidation, such as a favorable, streamlined refinancing. You may also be able to get a new loan from another lender to do a more traditional debt consolidation of your private student loans. 

Moving Forward: Loan Forgiveness Programs

Federal student loans offer borrowers other good options that are often better than forbearance or deferment. Loan forgiveness is an option for many federal student loan borrowers. To be eligible, you have to enter an income-based repayment plan and make payments for 20 or 25 years, depending on the specific plan you enter into. Many people think that loan forgiveness is only eligible for borrowers working for non-profits or the government, but forgiveness is available to anyone who enters into an income-based plan. 

While anyone with federal student loans can take advantage of the income-based repayment plans described above, borrowers working in government or non-profit jobs should consider the Public Service Loan Forgiveness (PSLF) program. PSLF is  available to borrowers who work in certain public service jobs. It allows for forgiveness after 10 years of payments, as long as the borrower follows yearly certification and additional eligibility requirements. PSLF is similar to regular income-based repayment plans, except that eligible borrowers can have their loans forgiven in 10 years instead of 20 or 25 years.

It’s important to note that private student loans don’t offer these forgiveness programs. If you want to enter into an income-based repayment plan and have your loans forgiven, you shouldn’t refinance your federal loans with a private lender.

Let’s Summarize...

Paying down student loans is stressful for most people, but this process doesn't have to control your life. If you’re unemployed or facing financial hardship, you can explore forbearance and deferment. As explained above, you should be aware of the potential costs of forbearance and deferment before making a decision. You should also explore all of your options, like income-based repayment plan and forgiveness before going into forbearance or deferment. If you have private student loans, make sure to reach out to your servicer if you’re having trouble making payments.

Written By:

Attorney Thomas J. Pearson


Thomas “TJ” Pearson is a Staff Attorney at the Metropolitan St. Louis Equal Housing and Opportunity Council (EHOC). He represents tenants in eviction cases and related landlord-tenant disputes. TJ is from Belleville, Illinois and currently lives in St. Louis, Missouri. He receive... read more about Attorney Thomas J. Pearson

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