If you can’t afford to repay your loans even under an income-based plan, you can apply for an economic hardship or unemployment deferment Opens in new window.
These programs pause payments for a year at a time, and you can renew twice (for three years total).
Even so, note that if you have unsubsidized, Direct PLUS or FFEL PLUS loans, interest may continue to accrue while your payments are deferred. If that's your situation, try to resume payments as soon as you can. The more interest added to your loan balance now, the harder it will be to become debt free later.
Don’t refinance (necessarily)!
You may have seen offers to refinance student loan debt at a lower interest rate. This can be a smart move—but if you have federal loans, think twice before you make it. The reason: When you refinance a federal loan, you do so with a private lender but waive protections like income-based repayment options and deferment.
Private lenders rarely offer these perks, and even when they do, they're not nearly as generous as Uncle Sam. For example, they may offer forbearance that suspends your loan payments—but you'll likely keep accruing interest. (With federal loans, you don’t have to pay interest during the federal forbearance program Opens in new window.)
These days, it’s probably best to keep your federal loans because the government has been willing to waive payments.
Consider consolidating and refinancing
Interest rates were attractive before the pandemic, but right now they're downright sexy. In fact, if you’re paying more than 4% on private loans, consider refinancing. For example, if you’re paying 7% interest on $50,000 in loans, refinancing to a 3.5% rate will save you $10,333 in interest over 10 years.
When you refinance private loans, your options will include the same repayment plan, a shorter repayment term with a lower interest rate or a longer repayment term with a higher interest rate. The trade-off: A shorter term/lower rate means higher monthly payments but a smaller overall debt burden; a longer term/higher rate means the opposite—lower monthly payments but more overall debt.
Because the payments are lower, a longer term is more flexible. If you’re not sure your employer will survive the pandemic or you have higher financial priorities, refinance for the longest term possible. Most lenders let you make extra payments without a fee, so you can pay more if you find a little extra in your budget.
When you refinance, you can also consolidate—that is, combine all your student loans into one monthly bill. This can help you track your payments and generally simplify the process.