All About Unemployment Deferments
Unexpected job losses can impact almost every aspect of your financial health, including your ability to repay your student loan debt. However, there is a relief measure that can help you tackle the repayment issue temporarily. If you have an outstanding federal student loan, you are eligible to apply for an unemployment deferment to put a temporary pause on monthly repayments.
According to rules set by the federal government, borrowers are eligible for unemployment deferments on outstanding student loans if they receive unemployment benefits or are trying to find full-time employment but are unable to access a job. The total period of this deferment is 36 months.
Moreover, if you have an outstanding federal student loan issued before July 1, 1993, you may even be eligible for additional deferment options. You can learn more about these options by getting in touch with your loan service provider.
Keep reading to understand how you can apply for an unemployment deferment and receive a temporary pause on payments.
Unemployment Deferments During Covid-19
The Federal Government recently launched the CARES Act to provide temporary relief for federal student loan borrowers. As of now, the government has postponed all federal student loan payments until September 30, 2020. During this period, interest will not be accrued on the outstanding principal. Ideally, this administrative forbearance would be auto-enabled on every federal student loan under the Department of Education.
Once this period ends, you will need to start making payments as usual. However, if you have lost your job owing to the COVID-19 pandemic, you may want to request an unemployment deferment before the administrative forbearance is over. This option is available for borrowers who have either a Direct Loan, an FFEL Loan, or a Perkins Loan.
What To Know About Interest Accrual
As with regular deferments, interest will continue accruing on the principal balance when you are approved for an unemployment deferment. Keep in mind that you are liable to keep making regular payments on the student loan until you are notified about the approval of your request. If you fail to make payments, your loan account will be marked delinquent and you will not be eligible for deferment.
In general, your loan balance will accrue interest when in deferment, but repayment scenarios vary.
- If you have a subsidized federal student loan such as a Direct Loan, Stafford Loan, or a Perkins Loan, the interest accrued on the outstanding balance will be paid by the government.
- If you have an unsubsidized loan, you are liable to keep making regular interest-only payments during this period. If you fail to make the payments, it will hurt your credit score and this interest will be capitalized to the overall loan balance. This will increase the total amount outstanding, thus increasing total interest and making it more difficult for you to repay.
How To Apply
To apply for an unemployment deferment, you will need to visit the loan service provider’s website and submit your request by providing relevant details. Alongside the application, you will also need to submit one of the following proofs:
- Proof Of Unemployment Benefits - You must provide paperwork that shows that you still have unemployment coverage, such as a copy of the benefits you receive from the state’s labor department. Your name, address, and Social Security number must also be included in the declaration.
- Confirmation Of Seeking Full-Time Employment - In the past six months, you must have tried to gain full-time employment at least six times. You must also be registered with an employment agency unless there is not one within 50 miles of your home.
You may also be eligible for this deferment if you are under-employed, meaning you have a job that is less than 30 hours a week and does not last for more than three consecutive months.
Unemployment deferment is not the only available option if you do not have a job or are working part-time. Other options include:
- Income-Driven Repayments - These repayment plans define a monthly payment by taking into account your monthly income, expenses, and number of dependents. Based on the calculations, you may get an affordable monthly payment or wind up paying nothing until your financial condition changes.
- Forbearance - This is another way of temporarily stopping payments or making smaller payments. If approved, you will still be liable to make interest-only payments every month. If you do not get approved for deferment, this is the next-best choice.
Deferment is but a temporary measure. It is recorded on your credit report and can lower your credit score if you do not make regular interest-only payments. If you apply for an unemployment deferment, make sure that you have substantial proof backing your claim.
There are different alternatives that can be explored instead of applying for a deferment right away. Consider options like an income-driven repayment first as it will help you clear your debts quickly and efficiently without straining your limited finances.