Mailbag: Private Loans, Federal Loans, and No Job

Michael Lux Mailbag, Student Loan Blog, Student Loans 0 Comments

Yesterday we received an email from a recent grad trying to figure out how to handle his student loans while he was still on the job hunt.

Hi Sherpa,

First of all, I am so glad I stumbled onto your site. Thanks for doing this – it is a great service for so many people.

I am just finishing up my graduate school and I am looking for a job. I have huge loans that are both Federal and a Private Lender (Sallie Mae – well now Navient.)

On the Federal side, my income right now I zero…. until I get a job. Am I better off with IBR and putting in zero as my income or should I seek a deferment / forbearance until I have employment? My in-school deferment ends next week.

One the Private side – looks like I am in trouble as I am not sure what my options are – my interest rates on my 4 signature loans are very high (9.75,9.75,13.25 and a whopping 14.25%) across almost $150k. I am planning to call them Monday to discuss and see if I can get that rate down and move to interest only – sound like deferment is not an option on these loans – so I am not sure what to do if I don’t get a job before the first payment is due in a month!

Any advice you can give will be appreciated.

I am hopeful to get a job soon – so there is some light at the end of the tunnel – but scared to death right now!


Facing six figures of student debt without a job is a terrifying situation.  Each passing day means growing interest and a growing balance.  Sadly, many recent grads find themselves in this dilemma.

The good news is that there are programs to get your loans on track while you look for a job.  Now is a great time to put together a plan of attack for all of your student loans.  The key to keeping things under control is to work one problem at a time.  There is nothing about this situation that is impossible, and if you make the right moves now, you can make your life much easier in the future.

Short-Term Goals

Step number one is a pretty easy one, but it is also a critical one.  Don’t take a deferment or forbearance on your federal loans.  It is a waste.  Get signed up for an income-driven plan, like IBR, as soon as you can.  If your income is zero, or below 150% of the poverty level, your IBR payments will be zero dollars each month.  Each passing month will also count towards student loan forgiveness.  Even if you don’t ultimately use the forgiveness option, signing up for IBR will stop the compounding of your interest and save you a ton of money in the long run.

On the private side, put together a plan with Navient.  Your best case scenario is to get signed up for their rate reduction program.  On this program your extremely high interest rate loans can be lowered to between 1 and 3%.  Going this route means you will still have monthly payments, but the long term savings is huge.  If you are forced to take a forbearance or a deferment, your interest rate will stay at its current high number, and your balance will be much higher when you finally land that job.  Even if your forbearance would end up being less than a year, it could still add over $10,000 to your principal balance.  Making payments while you are unemployed is no easy task, but if you can make it happen, you will be so much better off in the long run.  If you end up getting a lower paying job, the rate reduction program is something that you can use long-term to keep up with your large debt.

The most important of the short-term goals is to find a job.  Until you are gainfully employed, finding a job is your job.  Your private loans alone are generating nearly $1,000 per month on interest alone (assuming you cannot get it reduced).  This is an emergency situation.  It may be tempting to say that this isn’t the hiring season, or I should enjoy this time off while I can, but now is that time to focus your efforts on finding work.  Paying off student debt is a huge obstacle, and the longer you take getting started, the harder it will be.

Long-Term Goals

Your private loans will be the big hurdle.  All four of these loans are extremely high interest, and getting that lowered as soon as possible will be essential to knocking out that debt.  Once you have a good job in place, the rate reduction program, which was created to help struggling borrowers, will no longer be an option.  At that point in time, you should have a two part plan of attack.  Part one is to try to pay off either the loan with the smallest balance, or the one with the highest interest rate (these routes are called snowball and avalanche).  Part two is to look into ways of refinancing or consolidating your private loans.  In our list of student loan consolidation reviews, you will see that there are a number of lenders offering rates lower than 2%.  The people who qualify for these rates have high incomes relative to their debt and high credit scores as well.  Being able to consolidate at a lower rate isn’t something you will be able to do immediately, but it should be part of your long term planning as it is a way to get your debt paid off much faster.

The federal loans present slightly less of an issue.  Utilizing an income driven repayment plan, such as IBR, PAYE, or REPAYE, will make sure that your monthly payments are only a portion of your income.  This will keep your federal lenders happy, and your loans under control.  It also allows you to focus on the beast of a problem that is your private loans.

Bottom Line

If you find yourself in the same situation as the recent grad who wrote this letter, it is time to get to work.  Panic won’t fix anything.  This is a tough situation to be in, but there is definitely a light at the end of the tunnel.  The sooner you get started chipping away at this debt, the sooner it will be gone.

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