How to Manage Your Student Loans After a Layoff

If you lost your income and have federal loans, an income-driven repayment plan can temporarily shrink your payments to $0.
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Written by Eliza Haverstock
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If you recently lost your job and are worried about paying your student loans, you have several options to set your bill to $0.

Though the national unemployment rate was just 3.8% in August, up slightly from July, layoffs continue to hit workers in industries like tech, media, entertainment, fashion and consulting. Nearly 1,000 tech companies have collectively laid off some 230,000 workers so far in 2023, according to tech industry layoff tracker

To make matters even more stressful, federal student loan payments are set to resume in October, after more than three years of an interest-free payment pause that began in March 2020.

“Don't feel bad if you have to make tough choices and reprioritize,” says Scott Stark, a senior financial planner at Financial Finesse, a workplace financial wellness company.

Here’s how you can make your student loans fit into your budget as you get back on your feet.

Evaluate your budget and spending

Check your budget and spending to see where you can cut back.

“It's crucial to get an accurate sense of your essential expenses and rank them in order of priority,” says Akeiva Ellis, a certified financial planner and CFP Board ambassador. “Take the time to negotiate where it's possible, and consider areas where you can trim your budget.”

Student loans often have options for pausing payments that debts like credit cards or auto loans do not.

“It's just about staying afloat until you get that next job,” says John McCafferty, director of financial planning at Edelman Financial Engines, a financial advisory firm.

Contact your servicer

After a layoff, reach out to your student loan servicer or lender to learn about what assistance may be available to you, says McCafferty.

Your student loan servicer can walk you through relief options and their implications, help you update your payment amounts if you’re on an income-driven repayment (IDR) plan and answer other questions you may have.

Here are some specific relief options that could be available to you.

If you have federal student loans

Sign up for an income-driven repayment plan or recertify your income

An income-driven repayment (IDR) plan is the best option for most borrowers who lose their jobs because monthly bills are capped at a certain percentage of your discretionary income. If your income disappears, your payments should drop to $0 per month.

You can sign up for an IDR plan at any time, including after a layoff.

Even if you’re already on an IDR plan, you’ll need to submit a new IDR application to update your income post-layoff. The application will ask why you’re submitting it; write that you are submitting early because you want your servicer to recalculate your payment immediately.

You only need to recertify your income for an IDR plan once a year. If you qualify for $0 payments, that’ll last until your next recertification deadline, even if you get a new job sooner. This can give you some extra breathing room as you catch up on other bills.

A new IDR plan called SAVE is a good option to explore. The income threshold to qualify for $0 payments is more generous under SAVE than other IDR plans at about $32,800 for a household of one.

And unlike other IDR plans or some unemployment deferments, unpaid interest will not build if you’re on the SAVE plan, which could save you a lot of money in the long run.

The ‘on-ramp’ is a temporary safety net

From Oct. 1, 2023, to Sept. 30, 2024, borrowers who don’t make payments won’t be penalized under a 12-month student loan “on-ramp,” including no defaults, decreased credit scores or garnished paychecks. However, this is not an extension of the payment pause.

But if you lose your job during the on-ramp, you can skip payments if needed without signing up for a deferment or forbearance. The on-ramp is automatic, so it will kick in even if you simply don’t pay your student loan bill.

The on-ramp isn’t for everyone, Stark says. Interest will still accrue, increasing the amount you may eventually pay back, and payments are still due. Pay your bills if you can, either under an IDR plan or another repayment plan.

Once the on-ramp expires in late 2024, borrowers who lose their source of income may need to consider other options.

Unemployment deferment

Borrowers can pause payments for up to three years with a student loan unemployment deferment. This route could be helpful for borrowers who are receiving unemployment benefits or actively job-hunting, says Ellis.

However, depending on the type of federal loan you have, a deferment could increase the amount of interest you’ll eventually pay.

If you have subsidized or Perkins loans and don’t want to sign up for SAVE, an unemployment deferment might be a better option than the on-ramp because subsidized loans don’t accrue interest during a deferment.

However, if you have unsubsidized or parent or grad PLUS loans and don’t want to sign up for SAVE, the on-ramp may be better. Interest will build on these types of loans during deferment, and if you don't pay the interest as it accrues, it will be capitalized after your deferment period ends, which means it will be added to your loan principal. This could increase the total amount you'll repay over the life of your loan since you’ll be paying interest on a larger principal sum. But with the on-ramp, interest won’t capitalize.

If you have private student loans

Private student loans offer fewer protections for unemployed borrowers than their federal counterparts. Your options will depend on your loan terms and lender.

For example, private student loan lenders Ascent and FundingU offer hardship forbearances, limited to 24 months over the life of your loan. Interest will accrue during your forbearance and capitalize after the period ends, and your repayment term will be extended.

To see what help is available after a layoff, like a temporary deferment or forbearance, contact your private student loan lender directly.

“Always remember, whether federal or private, that communication with your loan servicers is key,” says Ellis. “They're there to help you navigate these challenging times.”

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