Jobless New Grads: What to Do When Student Loans Come Due
Tips for Handling Debt During the Pandemic
Finding your first job after finishing school is often a daunting challenge, but people who have graduated during the COVID-19 pandemic are facing unprecedented obstacles. And without a job, it can be difficult to meet your financial obligations, including making payments on any student loans you have.
If you find yourself without work and wondering how to pay your student debt, the good news is that you have options. Here's what you need to know.
The Job Market for Recent Grads
First and foremost, if you're jobless and can't cover your student loan costs, you aren't alone. The Bureau of Labor Statistics reported an overall unemployment rate of 6.7% in December 2020, and Glassdoor's economic research showed job opportunities for new graduates were down 68% in May of 2020 compared with the same time in 2019. The dearth of opportunities means members of the class of 2020 are trying to find work in one of the the worst job markets in history.
If you can’t find a full-time job, there may be opportunities to start freelancing within your field or to explore unique side gigs while looking for a permanent position, such as working as a coronavirus contact tracer.
Still, there's no guarantee you'll be able to find a job that will both feel safe to do during the pandemic, and provide you with the money to pay back your student loans. If you can't find the right position, it's best to explore your loan options ASAP.
Figure Out Which Student Loans You Have
If you're worried about your student loan payments, the first step is to determine what kinds of student loans you have. That's because your options are very different for private loans versus federal loans made by the Department of Education.
If you have most types of federal student loans, your interest and payments are deferred through Jan. 31, 2021—and may be deferred longer by the Biden administration. That means you don’t have to make any monthly payments and your loan balance isn't accruing interest that would cause the amount you owe to grow.
Not all federal loans are eligible for this 0% interest rate. If you have Federal Perkins Loans held by the school you attended or FFEL Program loans owned by commercial lenders, they are still accruing interest.
If you have private student loans, however, neither interest nor payments are suspended, although many lenders have offered help in the form of emergency forbearance of varying lengths. Many private student loan lenders offer a grace period of six months after graduation, but depending on your loan, it may still accrue interest during this time.
Take Advantage of Any Repayment Programs
Once you know the type of loans you have, you can explore which repayment programs may be available to you.
As mentioned above, you do not have to make any payments on federal student loans until at least Jan. 31, 2020. However, if you’re still unemployed when the moratorium on interest and payment ends, you have several options:
- Unemployment deferment: If you’re looking for work and can't find it, or are receiving unemployment benefits, you’re eligible for unemployment deferment for up to three years. Deferring your loans means you don't have to make payments. Interest will not accrue on Direct Subsidized Loans, although it will be charged on all unsubsidized loans.
- Forbearance: You can apply for forbearance on federal student loans if you are facing economic hardship. Forbearance allows you to pause payments for up to a year, but you can reapply as long as you still meet the conditions for forbearance. However, interest will continue to accrue, and you can either pay it as it accrues or allow it to be added to your principal at the end of the forbearance period.
- Income-driven repayment: Several different income-repayment plans cap your monthly student loan payments at a portion of your income. Each plan allows you to eventually get your remaining loan balance forgiven after you’ve made payments for a certain number of years. Under an income-driven plan, your payment could potentially be as low as $0.
While some private lenders also allow you to request voluntary forbearance on student loans, not all offer this option—and your choices may be more limited than with federal loans. While you may be able to pause your payments if you're eligible for forbearance, interest will always be charged on private loans during your forbearance period, leaving you with a larger loan balance to pay back.
When considering any repayment program, make sure you read the fine print. If interest continues accruing but you aren't required to pay enough to cover it, your loan balance will end up growing.
Seek Out Unemployment Benefits
Not having a job can affect more than just your ability to pay your student loans—it can profoundly affect your financial stability in many ways. However, other government benefits can help you bring in some income during these difficult times.
Unemployment benefits, for example, can provide you with regular income if you're eligible for them. States set their own rules for unemployment, which may include:
- You must be unemployed through no fault of your own.
- You must be willing to start working immediately.
- You must meet minimum requirements, such as working a certain number of hours or earning a certain amount of wages during a "base period" established by your state.
If you think you may be eligible, look up your state's unemployment insurance program to evaluate the eligibility requirements and submit your application.
Form a Plan Long Before the Due Dates
It can be extremely frustrating not to be able to find a job that allows you to pay your student loans, especially after you’ve worked so hard to get a degree to improve your career prospects. You do have options—but you need to be proactive and careful about exercising them.
If you're unemployed and don’t think you’ll be able to cover your monthly student loan payment, don’t wait until you’re already behind. Reach out to your lender as soon as possible to explore your options so you can take the time to make the decision that's right for you.