How recent college grads facing a tough job market can handle their student loans
The coronavirus pandemic has had a massive impact on the U.S. job market. According to the most recent numbers from the Bureau of Labor Statistics, non-farm jobs are down by 9.9 million since February 2020, and about 6.3% of Americans are currently unemployed.
For college students on the cusp of May or June graduation, it offers a grim future. They might worry about how they’ll find a job, pay the bills or, in many cases, pay their student loan bills once they start coming due.
If you’re in this boat — close to graduating and with student loans in tow — you’re not without options. It's helpful to use an online resource like Credible to determine what option best fits your individual circumstances. There are a few ways you can weather the storm and stay on top of those student loan bills while you do.
How to manage student loans in a hard job market
If you have federal student loans, then you’ll have a little leeway before you need to start making payments. Thanks to a move by the Biden administration earlier this year, federal student loan borrowers do not have to make payments until after September 30. Loans also won’t accrue additional interest during this time.
With that said, you’ll still need a plan for those payments come October 1. Fortunately, federal loans come with a number of options, including deferment, various repayment plans, and income-based repayment, which bases your monthly payment off your monthly earnings.
"This means that even after September 30, if the borrower is still unable to find employment and has no income, his or her monthly payment obligation would likely be reduced to zero," said Ross Riskin, associate professor of taxation at The American College of Financial Services.
Another perk? If you find a job in a public service field — like teaching, for example — you can potentially have your federal loans completely forgiven (under the Public Service Loan Forgiveness program).
Is refinancing a good option?
If you have private student loans, refinancing might be something to consider. Though you can refinance a federal loan, it would mean losing all the benefits those loans come with — including the payment pause through September 30 and the income-based repayment and public service forgiveness programs mentioned above.
The administration is also considering forgiving anywhere from $10,000 to $50,000 in federal student loan debt — yet another reason to hold onto those federal loans if you have them.
With private loans, though, refinancing can come with some big advantages. For one, it could lower your interest rate, reducing the long-term costs of the loan significantly. It could also reduce your monthly payment quite a bit — especially if you choose a longer-term loan than the one you currently have.
Finally, refinancing can increase cash flow — something much-needed if you’re unemployed or struggling financially.
"Now may be a great time for both recent graduates with private loans and borrowers with existing private loans to consider refinancing to lower the cost of their loans, increase cash flow, and be able to divert funds towards other financial goals," Riskin said.
The downside of refinancing is that it comes with various costs and fees. You’ll also need to have good credit in order to qualify. Fortunately, shopping around for your refinance can help. Rates, terms and qualifying standards tend to vary from one student loan lender to the next, so using a tool like Credible to compare your options can ensure you get the best deal for your needs.
Before moving forward, you should also use a student loan refinancing calculator to get a sense of what your new monthly payments will be — and how much refinancing could save you monthly and over time.
The bottom line
If you’re worried about finding employment and making your loan payments after graduation, you have options. If you’ve got federal loans, take advantage of the payment pause that was just extended through September, and use this time to get ahead.
If you’re a private loan borrower, think about refinancing, and be sure to shop around. Using a tool like Credible to compare lenders can ensure you get the best rate and term possible. You can also use Credible to get prequalified refinancing offers without hurting your credit score.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at email@example.com and your question might be answered by Credible in our Money Expert column.