Jobless New Grads: What To Do When Student Loans Come Due

Finding your first job after finishing school is often a daunting challenge. Without a job, it can be difficult to meet your financial obligations, including making payments on your student loans. 

If you find yourself without work or not earning a lot of income, you might wonder how you will pay your student debt. The good news is that you have options and here's what you need to know. 

The Job Market for Recent Grads

The good news is that the economy and the job market have drastically improved from the doldrums of 2020 and 2021. As a result of the coronavirus pandemic, the labor market has changed into a hybrid, remote workplace that favors job seekers. The Bureau of Labor Statistics reported an overall unemployment rate of 3.5% as of July 2022—far lower than the peak unemployment rate of 14.7% in April 2020.

Employers are facing challenges finding and retaining workers. As of June 2022, there were 0.6 unemployed workers per job opening versus 4.9 workers per opening during the early days of the pandemic. Conditions that have led to the tight labor market include fewer retirees and parents working, a strong rebound in consumer spending, and the lingering pandemic, leading to some workers not returning to the workforce. As a result, workers have more leverage, which spells good news for recent graduates.

If you can't find a full-time job in your field, there may be opportunities to start freelancing or explore side gigs while looking for a permanent position. However, even with the tight labor market, there's no guarantee you'll be able to find a job that provides enough income to pay back your student loans.

Figure Out Which Student Loans You Have

If you're worried about your student loan payments, the first step is to determine what kinds of student loans you have. That's because your options are very different for private loans versus federal loans made by the Department of Education. 

If you have the most common types of federal student loans, your interest and payments are deferred through 2023, due to President Biden's latest extension.

In other words, you don't have to make any monthly payments, and your loan balance won't accrue interest, which would typically increase the loan amount owed.

Not all federal loans are eligible for this 0% interest rate. If you have Federal Perkins Loans held by the school you attended or FFEL Program loans owned by commercial lenders, they are still accruing interest.

If you have private student loans, however, neither interest nor payments are suspended, although many lenders have offered help in the form of emergency forbearance of varying lengths. Many private student loan lenders offer a grace period of six months after graduation, but depending on your loan, it may still accrue interest during this time. 

Take Advantage of Any Repayment Programs

Once you know the type of loans you have, you can explore which repayment programs may be available to you. 

As mentioned above, you do not have to make any payments on federal student loans into 2023. However, if you’re still unemployed when the moratorium on interest and payment ends, you have several options:

• Unemployment deferment: If you’re looking for work and can't find it, or are receiving unemployment benefits, you’re eligible for unemployment deferment for up to three years. Deferring your loans means you don't have to make payments. Interest will not accrue on Direct Subsidized Loans, although it will be charged on all unsubsidized loans. 
• Forbearance: You can apply for forbearance on federal student loans if you are facing economic hardship. Forbearance allows you to pause payments for up to a year, but you can reapply as long as you still meet the conditions for forbearance. However, interest will continue to accrue, and you can either pay it as it accrues or allow it to be added to your principal at the end of the forbearance period. 
• Income-driven repayment: Several different income-repayment plans cap your monthly student loan payments at a portion of your income. Each plan allows you to eventually get your remaining loan balance forgiven after you’ve made payments for a certain number of years. Under an income-driven plan, your payment could potentially be as low as $0. 

While some private lenders also allow you to request voluntary forbearance on student loans, not all offer this option—and your choices may be more limited than with federal loans. Although you may be able to pause your payments if you're eligible for forbearance, interest will always be charged on private loans during your forbearance period, leaving you with a larger loan balance to pay back.

When considering any repayment program, be sure to read the fine print. If interest accrues, but you aren't required to pay enough to cover it, your loan balance will increase. 

Seek Out Unemployment Benefits

Not having a job can affect more than just your ability to pay your student loans—it can profoundly affect your financial stability. However, other government benefits can help you earn some income during these difficult times.

Unemployment benefits, for example, can provide you with a regular income if you're eligible for them. States set their own rules for unemployment, which may include:

• You must be unemployed through no fault of your own. 
• You must be willing to start working immediately.
• You must meet minimum requirements, such as working a certain number of hours or earning a certain amount of wages during a "base period" established by your state. 

If you think you may be eligible, look up your state's unemployment insurance program to evaluate the eligibility requirements and submit your application. 

Form a Plan in Advance of the Due Date

It can be extremely frustrating when you're unable to find a job that allows you to pay your student loans, especially after you've worked so hard to earn a degree to improve your career prospects. However, you have options, but it's important to be proactive and careful about exercising them.

If you're unemployed and don't think you'll be able to cover your monthly student loan payment, don't wait until you're already behind. Reach out to your lender as soon as possible to explore your options so you can take the time to make the decision that's right for you.