Being fired or laid off from your job is a terrifying feeling. Having student loan debt only complicates matters. Fortunately, there are a number of steps that can help you weather the storm while you find new employment.
The big variable in the student debt equation is whether your loans are federal or private. How you manage your loan will depend entirely upon the type of loan.
Federal Student Loans
Step number one is to call your loan servicers. They may offer you a deferment or a forbearance due to your hardship. This is not what you want.
Rather than opting for a temporary forbearance or deferment, you should enroll in an income driven repayment plan such as IBR (Income Based Repayment), PAYE (Pay As You Earn), or REPAYE (Revised Pay As You Earn). These plans calculate how much you pay each month based upon how much you earn. If your income is $0, your monthly payment will be $0. Being enrolled in one of these plans is a better option for a couple of reasons.
First, being on an income driven repayment plan counts as months towards student loan forgiveness. After 20 to 25 years of on time payments, your remaining student loan balance is forgiven on these plans. Even if you do not know whether or not you will be going after student loan forgiveness, using your months of unemployment towards forgiveness is a smart move.
Second, you may end up enrolling in an income driven plan once you find a job. Getting it done now rather than later can actually save you money due to interest capitalization.
If you are already on an income driven repayment plan, but your payments are too high because they were based upon your income while you were employed, you can get your payments lowered. When you call your loan servicer, explain that you need your payments recalculated due to a “change in circumstance”, specifically the fact that you were fired or laid off. Your loan servicer will then recalculate your payments and they will be lowered to the $0 per month.
Private Student Loans
This one is much more tricky to handle. It is also something that will be different for everyone because everyone’s finances are different, and many private lenders handle this issue differently. That being said, there are a few steps that all borrowers should take.
First, call your loan servicer and explain your circumstances. For private laons, if your lender is willing to offer a deferment or a forbearance, it might be a good option. This is also a situation where it might benefit you to make a few calls to your loan servicer about the issue. Some customer service reps are far better than others. One might tell you there is nothing that can be done, while another might have knowledge of a helpful program.
Second, look into lender specific programs that might help. For example, Navient and Sallie Mae both offer rate reduction programs. If you cannot afford your payment, they will temporarily offer a reduced interest rate to lower your monthly payments. Another lender, SoFi, actually offers career development services and will try to help you find a job.
Finally, you should give some thought to your long-term plan. If this looks like a temporary setback and you can get by on your savings, you may want to keep up with your student loan payments. If things look really bad and you are not sure how you are going to feed your kids, you might consider not paying any money to a lender who is not willing to work with you. This will be devastating to your credit score, but if the extra cash is far more important than your credit score, it is an option.
As soon as you find out you have been fired or laid off, it is time to take action with your student loans. Money will be tight and you want to make sure you are spending as little as possible to keep your loans up to date. Continuing to make regular payments may eat up your savings faster than necessary and ignoring you student loans will just create more problems. Take action, and put yourself in a position to get through a difficult time.