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Having student loan debt while unemployed is hardly an ideal situation. One strategy you might consider to help better manage student loan debt while jobless is student loan refinancing. However, you’ll have to qualify — and that isn’t necessarily easy to do when you’re on the sidelines, job-wise.But especially with the U.S. government’s pause on student loan payments set to end soon, it’s important to at least have a plan for how you’ll handle your student debt. Here’s a look at whether you can refinance while unemployed, as well as other options you might consider if you’re wondering how to pay off student loans with no job.
Can You Refinance Student Loans While on Unemployment?
While it’s significantly harder to qualify for refinancing while unemployed, it is possible to do. In general, lenders want to see proof of steady income and stable employment when determining whether to approve applicants. As such, unemployed borrowers will likely need to find someone to co-sign, vouching that they’ll be responsible for the loan if the borrower is unable to make payments. Having a co-signer may make it possible to qualify for refinancing on student loans while unemployed.
Paying off a Student Loan With No Job
Before attempting to refinance a student loan, it’s best to exhaust other options, given the difficulties of getting approved for refinancing while on unemployment. And especially for those with federal student loans, refinancing might not make sense due to all of the federal protections available.Here are some other student loan repayment options to consider.
1. Talking to Your Loan Servicer
Your first stop when seeking help with a student loan — for any reason — is your student loan services provider.If you’re not sure who your servicer is, there are different ways to find out, depending on if you have private or federal student loans. Borrowers with federal student loans can figure this out by:
Calling the Federal Student Aid Information Center at 1-800-433-3243
Visiting your account dashboard at studentaid.gov, where you’ll go to “My Loan Servicers”
Those with private student loans should reference their monthly loan statements, or log onto the online portal where they go to oversee their loans.Once you're connected, let your servicer know that you’re struggling with loan payments, and ask what solutions they can offer. Take notes, and ask customer service for their name and contact information in case you need to follow up later.
2. Applying for Unemployment
If you lost your job through no fault of your own, you’re likely eligible for unemployment. To find out how to go about applying, visit your state’s employment website.How much money you’re eligible to collect will vary by state. But getting at least some money coming in can help you stay on top of monthly bills, including student loan payments.
3. Offering to Pay Interest
If you can’t handle a full student loan payment each month, at least try to pay student loan interest charges until you regain work and can resume making the full payments. This will help keep your loan balances from ballooning too much during unemployment.To do this, you’ll need to get in touch with your loan servicer. As long as you’re upfront and transparent about your financial situation, it’s likely you’ll get approved for interest-only student loan payments for a set amount of time.
4. Making Some Side Income
To continue to at least make partial payments on your student loan, consider trying to find either part-time work or a freelance gig. You might do some driving for Uber or Lyft, take on writing or graphic design work, or pick up shifts at a restaurant or store, as a few examples.Working part-time isn’t forever, but when you want to keep paying your student loans, the cash earned from a freelance or part-time gig can come in handy. Plus, the flexibility will allow you the time to keep applying for full-time jobs and going to interviews.
5. Applying for New Jobs
This might seem like a no-brainer, but there’s actually more to getting a new job than just dropping your résumé for any opening that comes up. While it’s understandable if you want to get back to work as soon as possible if you’re unemployed, it’s still important to be strategic about the job search and look for opportunities that are truly the right fit for you. Also, don’t hesitate to negotiate — just because you’re currently without a job doesn’t mean you still can’t request the benefits and salary you deserve.
6. Using Emergency Funds
While you don’t want to drain your savings dry in case anything else unexpected were to arise, experiencing a job loss is exactly the reason you have an emergency fund. Ideally, when you were still earning a regular paycheck, you would have set aside enough money to cover at least three months of living expenses. Because student loan payments are part of your monthly expenses, you might consider putting some of your emergency fund toward at least partial student loan payments. Just make sure that when you are back to work full-time, you replenish your savings for any future emergencies.
7. Refinancing Your Student Loans
While you technically can refinance your student loans while on unemployment, there are some caveats. For one, it might be harder to get approved with no income, and a weak credit score will make it that much more challenging.Second, this might be a strategy better reserved for private student loans. If you have federal student loans, you’re likely eligible for repayment options that might be more helpful than refinancing while you’re unemployed. And when you refinance, your loans will get converted from federal to private, which means forfeiting access to federal benefits, such as loan forgiveness programs.However, if you have private student loans and can find a co-signer, refinancing might be worth exploring to deal with student loans with no job. Just make sure to take the time to shop around and compare rates to ensure it’s worth refinancing student loans.
Refinancing Federal Student Loans
As mentioned, refinancing federal student loans during a job loss likely is not a good idea. That’s because with private loans, you don’t have the same array of payment plan and forgiveness options as you do with federal student loans. Instead, you might explore forbearance, deferment, or even an income-driven repayment plan, to help you manage student loans while unemployed. With income-driven repayment, for instance, your monthly payment amount is based on your income. If you have no income because you’ve lost your job, your monthly payments due may drop to $0.
Refinancing Private Student Loans
If you do plan on going forward with private student loan refinancing while on unemployment, shop around and see what terms you may qualify for. Refinancing likely will only make sense if you can qualify for better terms, which will generally depend on your credit score, debt-to-income ratio, and income. Be upfront with any lenders you engage with, and don’t be surprised if they advise waiting to apply until you’re back at work and have a regular income. Also, be prepared for lenders to ask for a co-signer to your refinanced student loan, as that may be the only path to approval.Recommended: Pros and Cons of Refinancing
Should You Wait Until You Get a Job to Refinance?
It might make sense to hold tight on student loan refinancing if you’re out of a job. Even though the scenario may be temporary and you’ll likely resume collecting a regular paycheck soon, the approval odds are usually stacked against anyone looking for credit while out of work.In general, lenders are reluctant to grant loan approval unless the borrower has a steady, reliable income, solid credit, and a low level of personal debt. With a job, you’ll not only have a better chance of getting approved, but also of securing competitive terms.
The Takeaway
While you can refinance while on unemployment, there are other options worth exploring to manage student loans with no job. This includes talking to your loan servicer, making interest-only payments, taking on a side hustle, or digging into your emergency fund. Especially with federal student loans, there are likely better alternatives available. But with private student loans, refinancing could be an option — especially if you can get a co-signer to boost your approval odds.When you refinance student loans, you could end up paying less each month, thanks to lower interest rates or a longer loan term. You’ll also only have to worry about a single monthly loan payment. Plus, you can select a lender you’d like to work with.Find and compare multiple student loan refinance options with Lantern.
Frequently Asked Questions
Can I refinance if I'm on unemployment?
Do you need a full-time job to refinance student loans?
Can you use unemployment for student loans?
Can you refinance student loans without income?
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About the Author
Brian O'Connell
Brian O’Connell is a freelance writer based in Bucks County, Penn. A former Wall Street trader, he is the author of the books CNBC's Creating Wealth and The Career Survival Guide. His work has appeared in multiple media platforms, including TheStreet.com, Bloomberg, CBS News, Yahoo Finance, and U.S. News & World Report.
