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Thinking of joining the big resignation? Whether you are considering quitting your job to pursue a higher paying career or a better work-life balance, you could be part of a growing trend. The United States Bureau of Labor Statistics reported that more than 4.4 million people left their jobs in September 2021, or about 3% of the total workforce.
How unemployment affects federal and private student loans
With federal and private student loans, unemployment does not change the terms of your loan. Interest will continue to accrue on your balance and your full payments are still due as originally planned.
There are some options you can use to reduce or suspend your payments, but these options are not automatically applied; you must submit documents to your loan manager for review and approval. Whether you can defer or reduce your payments depends on the type of loan you have and your lender.
Federal student loans
If you have federal student loans, you may be eligible for one of the following programs:
- Income Based Refund (IDR). Under an IDR plan, your payment term is extended and your payments are set at a percentage of your discretionary income.
- Alternative payment plans. Some federal loans are eligible for other payment plans, such as extended or phased repayment. These plans can lower your monthly payments, but they are not based on your income.
- Adjournment or abstention. If you qualify, you can defer your payments for several months, and most deferral and forbearance periods are renewable.
Private student loans
Private loans are not eligible for federal IDR plans, deferral, or forbearance. But some private lenders have their own financial hardship programs and payment options. For example:
- College Avenue. College Ave offers forbearance to borrowers facing financial difficulties. If you quit your job and are having trouble paying your payments, you may be able to defer your payments in three or six month increments, for up to 12 months over the life of your loan.
- Route de Laurier. Student loan borrowers may be eligible for forbearance in certain circumstances. If you qualify, you can defer your payments for up to three months at a time, for a maximum of 12 months.
- Rhode Island Student Loan Authority (RISLA). RISLA offers nationwide private loans and has its own income-based repayment plan. If eligible, RISLA will base your payments on a longer payment term and discretionary income, potentially reducing the amount you have to pay each month.
Policies vary by lender, so contact your lender directly to see if you qualify for alternative payment plans or forborne.
7 things to ask about your student loans before you leave
Being unemployed with student loans can make a predicament much more difficult. Before you quit your job, ask yourself these seven questions to make sure you’re ready for what lies ahead.
1. How long can you afford your payments with savings?
Unless you qualify for forbearance or deferral, your student loan payments will be due as usual. If you are considering quitting, consider how long you can continue to make payments using your current savings. If you don’t have a lot of emergency funds, it might not be wise to quit right away.
2. Are you eligible for alternative payment plans?
Depending on the type of loans you have and your circumstances, you may be eligible for alternative payment plans, such as federal IDR plans. You can apply or, if you are already enrolled in an IDR plan, you can recertify your earnings after you quit your job. This will show that your income has dropped significantly, which could potentially lower your monthly loan payments.
3. Is deferral or abstention a good idea?
Find out if you can qualify for a deferral or forbearance. But make sure you understand how these programs work.
With most student loans, interest will continue to accumulate on your balance while the payment is deferred. Depending on your account details, this could potentially add thousands of dollars to your loans. Also, it will likely take you longer to pay off your debt if it is on hold for a considerable period of time.
The only exception is if you have federally subsidized student loans that are deferred from qualifying. In this case, you would not be responsible for the accumulation of interest. Otherwise, you will have to pay all the interest charges.
4. Are you continuing to forgive your loan?
If you have federal loans, you may be eligible for a teacher loan forgiveness or a public service loan forgiveness (PSLF). But if you quit your job, you may no longer be eligible.
- Teacher loan delivery: With Teacher Loan Forgiveness, you are only eligible for loan forgiveness if you teach for five full, consecutive years in a low-income school. If you quit before meeting these criteria, you will lose credit for the service you performed.
- PSLF: Under the PSLF, you do not lose credit for eligible payments you have made in the past. But payments you make while unemployed or working for a for-profit business do not count towards the PSLF, so you will lose your program eligibility until you find another eligible position.
5. Do you have to repay the student aid?
More and more employers are offering their workers tuition reimbursement and student loan assistance programs. However, be sure to read the fine print before you quit. With some businesses, you may be required to return the money you received if you leave before certain conditions are met. Depending on the help you have received, it may make more financial sense to delay the shutdown until you meet the service requirements.
6. Have you obtained a TEACH grant?
If you have taken out TEACH Grants to pay for your education, you must complete a service obligation and teach at an eligible school for four years within eight years of graduation. Otherwise, the grant is converted into a federal loan and you will have to repay the amount with interest.
7. Do you have other sources of income?
Of course, the easiest way to pay off unemployed student loans is to build up other sources of income. Whether you have a side business of delivering groceries, selling handmade items online, or providing business consulting services, developing other sources of income can ensure you keep pace with your student loan payments.
How to repay jobless student loans
If you have student loan debt, quitting your job can be scary. However, you can meet the challenge by making a plan before submitting your review. Start now by accumulating your savings, launching a new side program and exploring your payment options.