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. Each year new classes graduate and face new challenges.

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: 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 #3: 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 #4: 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.

Repayment is Possible for the Unemployed

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 another hurdle to overcome.

The post Student Loan Repayment Strategy for the Recent Graduates who Can’t Find a Job appeared first on The Student Loan Sherpa.

One of the best strategies to address the burden of high-interest student loans is through refinancing. Refinancing can help borrowers achieve lower interest rates. However, for the unemployed, this route presents unique challenges. Furthermore, jobless borrowers may want to avoid the refinance process altogether, depending upon which type of student loan they have.

This article will look at the refinance options available to borrowers and cover the different strategies that might come into play.

Federal Loans: Don’t Refinance If You Don’t Have a Job

For unemployed borrowers, federal student loans offer significant advantages over private loans, particularly when it comes to flexibility and repayment options.

Refinancing federal loans requires the borrower to convert their debt from federal to private. Although this move might make sense in certain circumstances, it is not a good idea for unemployed borrowers.

Federal student loans include some perks that are particularly advantageous during periods of unemployment. One of the best perks is the option to enroll in an income-driven repayment (IDR) plan.

IDR plans adjust a borrower’s monthly payments based upon their income. For borrowers with no income, this means that they will probably qualify for $0 payments until they can secure an income. Recently unemployed borrowers should enroll in an IDR plan as soon as possible to lower their monthly payments.

The flexibility and security provided by federal student loans often outweigh the potential benefits of a lower interest rate offered by refinancing. In fact, federal student loan perks, such as IDR plans, are so good that many borrowers choose not to refinance simply to safeguard against potential job loss or periods of lower earnings.

Thus, for unemployed borrowers, the protections and flexibility offered by federal student loans typically make them a superior choice compared to private loans. Refinancing to a private loan, even at a lower interest rate, could remove these critical safety nets and is not advisable without stable and secure employment.

Unemployed Borrowers Need a Cosigner to Refinance

Lenders will almost certainly reject a student loan refinancing application if the applicant lacks income. After all, it would be bad business for companies to loan money to individuals without the means to repay it. However, adding a cosigner to their application can enable some of those individuals to secure a refinance approval.

Having a cosigner means that another individual shares the legal responsibility for the debt. This site has repeatedly cautioned against cosigning student loans due to potential complications, such as:

• Impact on Credit: The debt can affect the cosigner’s ability to qualify for other loans, such as a mortgage.
• Difficulty Removing the Cosigner: While many lenders advertise cosigner release programs, the reality of actually removing a cosigner from the debt can prove quite challenging.
• Financial Risk to the Cosigner: If the borrower fails to make payments, the cosigner is legally obligated to pay. This can strain personal relationships and finances.

Despite these concerns, there is one scenario in which cosigning a loan could make sense. If a cosigner is already on the original student loans, it is usually in their best interest to cosign for a refinance loan. By helping the borrower refinance, the cosigner helps the borrower obtain presumably better terms, especially lower interest. This reduces the overall debt burden and decreases the chances that the cosigner will need to step in.

Borrowers who don’t have a cosigner on the existing loans, but are considering one for refinancing, should fully understand the implications. An unemployed borrower asking someone to cosign is essentially asking them to become legally responsible for a debt that the borrower has no current ability to pay. This is an objectively bad financial decision for the cosigner. Thus, borrowers should make certain that the cosigner understands the risks associated with cosigning the loan. The cosigner must be willing and able to manage the debt if the borrower cannot.

Shopping Around Becomes Especially Important

When it comes to student loan refinancing, shopping around is always a good idea. Each lender uses a unique secret formula for calculating the rates offered to borrowers. Thus, the only way to find the best rate possible is to check rates with several different lenders.

For unemployed borrowers, shopping around is pretty much mandatory. Some lenders automatically reject all refinance applications from borrowers without income. Other lenders will consider such applications if the applicant includes a cosigner.

However, adding a cosigner to the equation further complicates the lender formulas. Some lenders may charge their worst rates to the zero-income borrowers. In such scenarios, the cosigner exists only to change the rejection into an approval. On the other hand, some lenders might focus more on the creditworthiness and income of the cosigner, potentially offering significantly better rates if the cosigner’s financial standing is solid.

The process of shopping around involves comparing the terms offered by various lenders to see which one truly offers the most favorable conditions, taking into account both the borrower’s and the cosigner’s financial situations. This process can be time-consuming and requires thorough research. However, checking rates with several different lenders is the best strategy to secure the most advantageous refinancing terms. This is especially true for unemployed borrowers or those considering adding a cosigner to their applications.

Refinance Lenders to Consider

Securing refinance approval for an unemployed borrower is a major challenge.

The following lenders may offer the best odds of success:

• LendKey – According to our most recent student loan lender survey, LendKey had the highest percentage of applicants with a cosigner. This added emphasis on cosigners may be to the advantage of the borrowers who are between jobs. Additionally, LendKey works with many local banks and not-for-profit credit unions who may be more forgiving than many national lenders.
• Credible – Credible isn’t actually a lender. Instead, Credible will check rates with a handful of student loan companies to find the best offer. Going this route could save borrowers some time scanning the market.

While LendKey and Credible may offer the best odds of success, borrowers should also work their way through our full list of student loan refinance companies to find the best option.

Steps to Take When Employment is Secured

Once borrowers find a job, they should almost immediately start the refinance process again.

Those that were successful in refinancing without a job will find that they can get better rates. Additionally, they may be able to refinance without the help of a cosigner.

Those that failed may find that employment opens up many new doors for refinancing. They will also have much better odds at securing the lowest rates currently in the market.

The post Student Loan Refinancing for the Unemployed appeared first on The Student Loan Sherpa.

In fact, these plans are ideal for people without jobs.

The beauty of income-driven repayment plans is that monthly payments are calculated based upon what you can afford to pay, rather than the total amount you owe.  For unemployed borrowers, that means $0 payments – a significant financial relief for periods of no income.

What happens once I get a job?

For purposes of Income-Driven Repayment (IDR) plans, the government determines what your income is on an annual basis, usually by using your most recent tax return. To remain on an IDR plan, you must recertify your income each year. Once you secure employment, this income will be reflected in your future tax returns. Accordingly, as your financial situation improves, your monthly payments will increase.

This setup is particularly advantageous for recent graduates who are still job hunting. Instead of having to estimate a non-existent income, they can apply for an IDR plan using their current income status and likely qualify for $0 monthly payments for that first year.

However, it’s important to remember that while your monthly payment might be $0, interest will still accrue on any unsubsidized loans. This means your total loan balance will increase. Therefore, while a $0 monthly payment minimizes your immediate financial burden, it might not be the most strategic approach in the long term.

Isn’t a $0 payment the same as a deferment or a forbearance? 

Opting for a $0 payment under IDR plans like IBR, PAYE, or SAVE presents a much better alternative than choosing deferment or forbearance. For starters, deferments and forbearances usually are limited. With income-driven repayment, as long as you recertify your income each year, it is always an option.

One of the biggest advantages of enrolling in the IDR plans is that even those $0 monthly payments still count towards student loan forgiveness. Under the IBR, PAYE, and SAVE plans, student loan forgiveness can be obtained after 20-25 years. Although much strategy goes into deciding whether or not chasing forgiveness is the best route, for borrowers with an uncertain future income, counting those months towards forgiveness is an easy call. In contrast, time spent in forbearance or deferment counts towards nothing.

Furthermore, borrowers who are pursuing Public Service Loan Forgiveness (PSLF) may also benefit from enrolling in an IDR plan. Their $0 payments could count towards PSLF if they find a job with an eligible employer.

What about the monthly interest?

Even though $0 monthly payments might seem like the perfect deal, there are important considerations that borrowers need to be aware of. The most critical concern is regarding interest. As you pay $0 on your student loans, your balance will be growing. Your monthly statement may not show the interest that accrues each month, but your loan servicer has not forgotten about it.

When you leave your income-driven plan, the interest that you didn’t pay is added back to the principal balance. In accounting, this is referred to as interest capitalization. When this happens, you start paying interest on the interest. Interest capitalization is one of the reasons that student loan balances can spiral out of control. Fortunately, interest capitalization can be avoided in many circumstances. It is critical for borrowers to understand what triggers interest capitalization and to take steps to avoid it.

One perk unique to the SAVE plan is the treatment of excess interest. Borrowers without a job should seriously consider SAVE as it prevents interest accumulation and balance growth.

Which repayment plan should I select?

Selecting the right IDR plan can be a bit tricky. Not all borrowers qualify for every repayment plan and some federal loans also have eligibility limitations.

The optimal repayment plan for you can vary based on several factors, including your marital status, how you file your taxes, and the specific types of student loans you hold. This article on picking the best income-driven repayment plan should help you make your decision. Additionally, discussing your options with your student loan servicer can further ensure that you select the most suitable plan for your financial circumstances

How do I sign up?

In the past, the signup procedure was somewhat complicated. Fortunately, the Department of Education has created a single application for all income-driven plan requests. It can be found on the Department of Education’s Student Aid website.

What if I have Parent PLUS loans that are not eligible for IBR, PAYE, or SAVE?

One of the downsides to Parent PLUS loans is that they are not eligible for IBR, PAYE, or SAVE. Sadly, a Parent PLUS loan is not eligible for any income-driven repayment plan.

However, there is a way around this issue. A Parent PLUS loan can be consolidated through federal direct consolidation. The new consolidated loan is then eligible for the Income-Contingent Repayment Plan (ICR). Unfortunately, the ICR plan calls for 20% of your discretionary income, while IBR, PAYE, and REPAYE only charge 10-15%. However, if you are unemployed, 20% of zero is still $0.

ICR is a rarely used repayment plan because the newer income-driven repayment plans are usually a better choice. In this case, ICR is the only income-driven option available, so it is the best option.

Before going through federal direct consolidation, it is essential to understand the consequences of the process before forming your strategy. Furthermore, if you are going to consolidate, be sure to consolidate only the Parent PLUS loans and not any other federal student loans. Combining loan types could result in some of your student loans losing eligibility for certain federal programs. Be sure to talk with your loan servicer about this process so that you do not make any mistakes in your effort to get $0 payments on your Parent PLUS loans.

Final Thought: Income-Driven Repayment could be ideal.

If you are unemployed or barely making enough to get by, income-driven repayment plans can help you lower your monthly student loan bills so that your student loans do not become delinquent or go into default. In many cases, this can mean $0 monthly payments.

The post Can I sign up for IBR, PAYE or SAVE if I don’t have a job? appeared first on The Student Loan Sherpa.