Getting fired or laid off from your job is a terrifying feeling. Having student loan debt only complicates things. No matter the circumstances of your unemployment, facing student loans without a steady income sounds scary.
The good news is that there are many resources and tools available to help borrowers without jobs. Borrowers have access to programs that can pause payments, options to lower monthly payments to $0 per month, and paths to forgiveness.
For recently fired borrowers, there are a few steps to take immediately. Quick action can save money and make the job hunt less stressful.
Step Number One for Fired Federal Student Loan Borrowers
One of the great perks of federal student loans is income-driven repayment. Most unemployed borrowers will qualify for $0 per month payments because they don’t have an income.
Additionally, borrowers do not have to wait until their yearly income certification to have their monthly payments changed. Instead, they can request an immediate recalculation of their IDR payments. Moving quickly will provide immediate relief to federal borrowers.
Best of all, time on an IDR plan, even if you are paying $0 per month, counts towards student loan forgiveness. This means that even if you don’t have a job or cash to spare, you can still make progress on federal debt elimination.
Sherpa Tip: If you call your loan servicer, they may suggest a deferment or a forbearance. It is better to sign up for IDR payments at $0 per month. Forbearances and deferments are limited resources, but borrowers can qualify for $0 payments as long as necessary. Additionally, the time on deferment or forbearance will not count towards forgiveness.
Servicers occasionally push for the deferment/forbearance option because it means less paperwork for them and a shorter call. Don’t cut corners getting your loans in order.
Help for Private Loan Borrowers
Private student loans are notoriously less generous than federal loans. However, options still exist.
Because each student loan and lender may have unique terms and rules, options for fired borrowers may vary. Most lenders will offer a temporary forbearance or deferment. Other lenders may offer a temporary reduction in interest rates. Some might even help you find a job.
If your lender tries to play hardball, it is still important to stay in contact and have a dialogue about your options. A simple phone call may be enough to help avoid late fees getting added to your balance each month.
Additionally, if your lender is unwilling to help you during a financial hardship, filing a complaint against them could help. Lenders will usually be on their best behavior when facing a complaint before a government agency. Borrowers should keep track of all of their lender interactions and requests for help. These records could be very helpful if the time comes to file a complaint. If possible, interacting via email is preferred so that you have proof of every conversation.
Don’t Pay Bills You Cannot Afford
Student loan lenders and their collection agencies are very good at getting borrowers to make payments. Sometimes they get the money by threatening the borrower with negative credit reporting. Others will shame and harass borrowers until they make a payment. Generally speaking, the more a borrower tries to avoid a lender, the harsher the lender gets in their collection efforts.
Even though the lender’s only concern is getting paid, you, the borrower, have more pressing priorities. You need a roof over your head and food in your belly. You might also have children who depend on you.
If you are unemployed, you may have to stretch your finances for a while. This could mean cutting corners that might otherwise never get cut. Making student loan payments is important, but it is far from the most important thing. Don’t make the mistake of paying your lender if it means you can’t pay the water bill. Hurting your credit score is bad, but getting evicted is worse.
Investigate Student Loan Forgiveness Options
If you have federal loans, it will be worthwhile to educate yourself on the various paths to student loan forgiveness.
In addition to the IDR forgiveness options previously mentioned, borrowers can also get forgiveness based upon their profession. Government and non-profit workers can also qualify for Public Service Loan Forgiveness. These paths to student loan forgiveness might influence your job search. Many borrowers choose to focus on finding an employer eligible for PSLF.
Avoid the Big Mistake: Don’t Ignore Your Loans
Many borrowers make the mistake of assuming that because they can’t afford their monthly bills, there is nothing that they can do. This is a dangerous assumption.
In most cases, the worst thing that can happen is the lender charges late fees, the balance grows, and the borrower’s credit is damaged. Eventually, it may lead to the debt going into collections and the borrower getting sued by the lender.
Ignoring your student loans only speeds up the worst-case scenario.
The borrowers that make a few calls and ask for help often get some assistance. They delay the worst from happening, and they give themselves an opportunity to find a job.
When it comes to dealing with student loans after getting fired, ignorance is not bliss… it is a mistake.