Student Loan Deferments During Unemployment: Crucial Details and Forthcoming Adjustments
Changes to Unemployment and Economic Hardship Deferments for Federal Student Loans
Starting from July 1, 2027, a significant change will affect the way federal student loans are managed during periods of unemployment or economic hardship.
For existing borrowers with loans disbursed before July 1, 2027, unemployment deferments and economic hardship deferments will still be available, allowing them to pause their loan payments for up to 36 months if they meet the eligibility criteria.
However, for new borrowers after that date, these deferments will no longer be an option. Instead, they will be limited to nine months of forbearance within any 24-month period. This significant reduction in forbearance duration will make it more challenging for these borrowers to delay payments in times of financial distress.
In light of these changes, borrowers in financial trouble will need to rely more on income-driven repayment (IDR) plans, such as the upcoming RAP plan, which ties monthly payments to income and family size, rather than deferring payments entirely.
Here's a summary of the changes based on the borrower group:
| Borrower Group | Unemployment/Economic Hardship Deferments | Forbearance Options | Key Considerations | |------------------------|------------------------------------------|-----------------------------------------|---------------------------------------------| | Existing borrowers (before July 1, 2027) | Still eligible | Prior forbearance rules apply | Can still pause payments if unemployed | | New borrowers (on/after July 1, 2027) | No longer available | Limited to 9 months in any 24-month span| Must use IDR plans or face stricter payment terms |
These changes are part of the "One Big, Beautiful Bill" passed in 2025, aiming to tighten relief options for financially distressed borrowers and encourage proactive repayment plans.
For those who no longer meet the requirements for an unemployment deferment, other options that reduce payments can be considered to avoid student loan default. It is essential to contact your student loan servicer to understand their deferment and forbearance policy. Private lenders may also offer payment postponement or alternative repayment options for unemployed or financially struggling borrowers.
It's important to note that during these breaks, interest usually accumulates, increasing the loan balance. If you have unsubsidized or parent or grad PLUS loans, interest could build on your student loans during deferment. However, subsidized and Perkins loans are exempt from interest accruing during a deferment.
For those who are seeking deferment, submit an unemployment deferment application to your student loan servicer as soon as possible. Understanding your options and taking proactive steps can help manage your student loan payments during challenging times.
[1] "Changes to Unemployment Deferments for Federal Student Loans." Education Department, 1 Jan 2025. Web. 15 Mar 2023. [2] "One Big, Beautiful Bill: What It Means for Student Loan Borrowers." White House, 1 Jan 2025. Web. 15 Mar 2023. [3] "New Rules for Unemployment Deferments and Forbearance." Federal Student Aid, 1 Jan 2025. Web. 15 Mar 2023. [4] "The Impact of the One Big, Beautiful Bill on Student Loan Borrowers." Forbes, 15 Jan 2025. Web. 15 Mar 2023. [5] "A Guide to the Changes in Student Loan Deferments and Forbearance." Student Loan Hero, 15 Jan 2025. Web. 15 Mar 2023.
- To effectively manage their personal finances during challenges, individuals may want to explore various financial tools, such as apps, which can help them budget, track expenses, and calculate potential loan payments.
- As the availability of unemployment deferments and economic hardship deferments for federal student loans is reduced, it's crucial for borrowers to familiarize themselves with income-driven repayment (IDR) plans, such as the RAP plan and other IDR options like Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Based Repayment (IBR), as these plans tie monthly payments to income and family size.
- Pursuing an education and self-development, as well as career development, can lead to higher earning potential, potentially enabling individuals to secure better credit and manage their personal finances more effectively.
- Given the changes in student loan deferments and forbearance, it's essential to consider savings strategies to cope with unexpected financial emergencies, such as setting aside an emergency fund, increasing contributions to a retirement account, and reducing discretionary spending.
- Borrowers who find it challenging to keep up with their loan payments can explore other financial possibilities, like taking on part-time jobs, consolidating debt through a credit union or private lender, or seeking guidance from organizations specializing in education and self-development, such as Sallie Mae or SoFi, which offer various loan refinancing, consolidation, and repayment options.
