How to manage your student loan payments after a layoff

Figuring out how to keep up with monthly student loan payments is one of the many challenges for those who have lost their job.

Many more people are now facing that headache. Job cuts are on the rise, fueled in part by terminations of federal workers.

More than 40 million Americans hold student loans, and the total outstanding debt exceeds $1.6 trillion.

Here’s what to know about the payments if you’re out of work.

A bad time to seek lower payments

Federal student loan borrowers who are laid off from their jobs are usually able to sign up for an income-driven repayment plan and get a lower payment, or even a $0 bill, while they’re unemployed.

IDR plans limit borrowers’ monthly payments to a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years.

However, at the moment, borrowers are unable to access the applications for IDR plans.

The disruption is due to a recent U.S. appeals court decision that blocked the Biden administration’s new IDR plan, known as SAVE, or Saving on a Valuable Education. It also blocked the loan forgiveness component under other IDR plans.

As a result, borrowers may also face temporary challenges if they’re already in an IDR plan and trying to go through the recertification process that allows them to get lower payments if their income has changed — or ceased. (Borrowers who were enrolled in SAVE remain in forbearance and do not have to make payments for now.)

The lack of IDR plan application and recertification access is “hugely disruptive, especially in this particular moment when thousands of people are being laid off or fired,” said Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center.

It remains unclear when the IDR plan applications will become available again.

While you may be stuck in your current repayment plan for the time being, you still have options, consumer advocates say.

Unemployment deferment for student loans

“If a borrower’s employment is terminated, they may want to apply for an unemployment deferment,” said higher education expert Mark Kantrowitz.

Borrowers may be eligible for this pause on their payments if they’re receiving unemployment benefits or are looking for and unable to find full-time employment, among other requirements, Kantrowitz said.

The reprieve can last for up to three years.

Another option that allows you to suspend your student loan bills is the economic hardship deferment. Additional, lesser-known deferments include the graduate fellowship deferment, the military service and post-active duty deferment, and the cancer treatment deferment.

Student loan borrowers may also be eligible for a general forbearance.

Whenever a borrower applies for a period of nonpayment, they should find out if interest will accrue on their debt in the meantime. If it does, they’ll have a larger balance when their payments resume. Making payments during the deferment or forbearance to at least cover the loan interest on your debt can avoid that outcome, Kantrowitz said.

Those with private student loans may find they have fewer options. However, experts recommend explaining to your lender that you’ve lost your job and asking what relief might be available.