About ten years ago, during the worst of the Great Recession, I finished college. I had no job and six figures of student loan debt starting repayment.
It was terrifying. I spent hours every day crafting cover letters and tweaking my resume. Most employers ghosted me — not even taking the time to say thanks for your effort.
I carry the hardships of that time with me to this very day. Yet my challenges were nothing compared to what many in the class of 2020 are experiencing.
With this in mind, I’ve put together some tips for those who haven’t found a job but who have student loans.
Tip #1: Sign Up for Income-Driven Repayment
One of the biggest perks of having federal student loans is having access to Income-Driven Repayment Plans. These plans allow borrowers to make payments based upon what they can afford rather than what they owe. For borrowers not earning any money, it means monthly payments of $0. These $0 payment months are superior to a forbearance or a deferment for two main reasons: First, making $0 payments can count towards student loan forgiveness programs like Public Service Loan Forgiveness. Second, deferments and forbearances are limited resources. Borrowers can stay on income-driven repayment as long as they like.
The default plan is the Standard Repayment Plan. In most cases, this is also the repayment plan with the highest monthly payment. For someone without a job, the default plan is probably the worst repayment option.
Tip #2: Don’t Make Payments During the Interest Rate Freeze
For the remainder of 2020, borrowers are not required to make payments on most federal student loans. Additionally, the federal government will not be charging interest on these loans.
Some have argued that borrowers will benefit from making payments during the rate freeze because it is a good opportunity to knock down the balance. I disagree. Setting aside money for future payments is probably the ideal approach for most borrowers. This is especially true for those who haven’t secured income long-term.
Recent graduates looking to do something responsible with their money will likely be best served by setting it aside in an emergency fund.
Tip #3: Investigate Refinance Options for Cosigned Loans
Refinancing depends upon passing a credit check. Borrowers without a job will need a cosigner to refinance. Unfortunately, cosigning on a student loan is a huge financial commitment by the cosigner and can be quite expensive. As a result, this site typically advises against consigning a student loan or a refinanced student loan.
However, there is one situation where cosigning on a student loan refinance is a smart decision. Cosigning on a refi could be the right decision if the cosigner is already the cosigner on the existing loans. By refinancing, the old loans are paid off and replaced with a new one. From the cosigner perspective, things haven’t changed much. Using a refi to get a lower interest rate or lower monthly payment is a huge win from the borrower’s perspective. If the borrower can keep up with their student loan obligations, things are much better for the cosigner.
The strategy behind refinancing for the unemployed is explained here.
Tip #4: Don’t Ghost Your Lenders
Many lenders have programs in place to help borrowers impacted by Coronavirus. The “impacted borrowers” would certainly include recent graduates in repayment who can’t find a job.
A continued dialogue is a great way to ensure that borrowers avoid late fees and negative credit reporting. It won’t always work, but most of the time, borrowers will have a positive impact by staying in contact with their lenders.
The borrowers who assume there is nothing they can do and ignore their lenders will be digging themselves a deep hole.
Tip #5: Prioritize Your Finances
For some people, prioritizing finances means realizing that paying the electric bill is more important than paying off student loans. For others, it means setting aside some money in an emergency fund.
Student loans are important because the debt can take decades to pay off, and mistakes early in repayment can quickly spiral out of control. Yet the negative credit consequences are far less severe than the consequences of not having a roof over your head or food in your belly.
Borrowers should be willing to try to work with lenders during a financial hardship, but they should never let lenders coerce them into making a payment that they cannot afford.
No Job Doesn’t Mean Repayment is Impossible
Dealing with student loans while hunting for a job can be extremely stressful.
While it is crucial to stay on top of your student loans, it is also important not to get consumed by your debt. For many borrowers, stress caused by student debt can be very severe.
Find a way to responsibly manage your student debt without it haunting you. For some borrowers, this means setting aside some time once or twice a month to address student loans and other bills. The rest of the time, these borrowers can permit themselves to not think about their debt.
Repayment of student loans might be stressful, but it is essential to remember that it doesn’t define the person or what they will do in life. It is just one of the many hurdles that the class of 2020 will overcome.