Paying Off Student Loans In A Recession Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure

Advertiser Disclosure

We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.

How We Make Money

The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE:

On This Page

Adam Crowley/Getty Images September 15, 2022 Heidi Rivera is a student loans writer for Bankrate. She began her journey in the personal finance space in 2018 and is passionate about collecting data and creating content around higher education and student loans. Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans. Bankrate logo

The Bankrate promise

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo

The Bankrate promise

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo

Editorial integrity

Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.

Key Principles

We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.

Editorial Independence

Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo

How we make money

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. The economy in which you graduate dictates not only your job prospects but also your earning potential. According to a , those who graduated college right after the Great Recession of 2008 experienced lower employment rates and earnings through the first decade of their careers compared to those who graduated before the recession. This may explain why during that period of time, as many graduates struggled to find good-paying jobs to keep up with repayment. Although we’re not technically in a recession yet, that that’s where we’re headed. Still, this time around may not be as bad for student loan borrowers as it was back in 2008; this is partly due to , which includes mass student loan cancellation. But whether you’re a recent grad or have been paying your debt for years, it’s always best to be prepared. Here’s how to stay on top of your student loan payment if a recession hits.

Student loans during the Great Recession

Between December 2007 and June 2009, the U.S. experienced one of its longest economic downturns, known as the Great Recession, which peaked in 2008. During that time, many adults flocked back to college in hopes that a newly minted degree would be the path to a better job. But there was one problem: Many of these adults enrolled at , which tend to have higher price tag than four-year public institutions. This means that they graduated college with substantially more debt than their peers who attended public institutions and who graduated a year or two before the Great Recession. This, combined with fewer job opportunities and a lack of flexible student loan repayment options, caused student loan default rates to increase by as much as 17 percentage points between late 2006 and 2009, according to the

Current state of student loans

Americans collectively owe a staggering $1.6 trillion in federal student loans — and counting. estimates that the average undergraduate student leaves school with $25,000 in student loans, and it’s a problem that’s affecting more than 45 million people from all walks of life. In an effort to tackle the current student debt crisis, President Joe Biden recently unveiled a , which includes one-time student loan cancellation. Under this plan, borrowers earning less than $125,000 a year could see their federal student loan balances decrease by as much as $20,000, depending on whether they received the Pell Grant. Kristin Blagg, senior research associate at the Urban Institute, says that this plan could be a key driver in avoiding another student loan default wave — like the one we had in 2008 — should we enter a new recession. “Those who borrow small amounts of student debt — $10,000 or less — are more likely to struggle with delinquency and default, because this sometimes indicates that the borrower may not have completed the degree or certificate that they were pursuing,” Blagg says. “These low-balance borrowers are likely more vulnerable during a recession. If these borrowers have their loans forgiven, they will no longer be in the student borrower pool, potentially reducing the share of borrowers who drop out of current repayment due to financial difficulties in a recession.” She also adds that Biden’s new proposed , which would cap payments at 5 percent of a borrower’s discretionary income instead of the usual 10 or 20 percent, could also help borrowers remain current with their payments.

How to pay student loan debt in a recession

Recessions are marked by decreased economic activity, which usually causes massive layoffs or a reduction in working hours — all of which can have a negative impact on your wallet. Derek Brainard, national director of financial education at AccessLex Institute, says that during times of economic crisis, your primary focus should be “simply doing what needs to be done to keep loans current and in good standing, rather than paying them off quickly.” Here are some ideas you can explore to help you do just that.

Take inventory of your options

A key part of keeping your student loans current is knowing what relief options may be available to you in case of economic hardship. If you have , lenders usually offer short-term or for borrowers who are going through financial hardship. Although both of these alternatives will temporarily pause your payments, interest will continue to accrue during this time, which means that your payments could go up once they resume. Some lenders may also let you make interest-only payments for a few months. To find out your options, you’ll have to contact your lender or servicer. For federal student loans, payments are currently paused — interest-free — until Dec. 31, 2022, so you have some flexibility. Likewise, federal student servicers also offer forbearance and deferment options, just like private lenders do, in addition to flexible repayment plans. You can apply for one of these options by reaching out to your servicer.

Apply for an income-driven repayment plan

One of the benefits of having federal student loans over private ones is that you have access to a variety of . Under an income-driven repayment plan, your monthly payments are capped between 10 and 20 percent of your discretionary income and can sometimes can be as low as $0 if you’re unemployed. To apply, simply log into your Federal Student Aid account and . You can also contact your student loan servicer directly. Keep in mind that although income-driven repayment can make your payments more affordable, it will slow down your repayment process. However, if you have a balance at the end of your new repayment term, you could get the remaining amount forgiven.

See if you qualify for forgiveness

If you have federal student loans and work for a qualifying nonprofit or for a U.S. government agency at the state, tribal or federal level, you could qualify for the Department of Education’s program. With this program, you get the remainder of your federal student loan balance forgiven after making 120 payments on an income-driven repayment plan while working for a qualifying employer. But even if you don’t work for any qualifying agencies, you can still get up to $20,000 of your federal student loan balance forgiven if you earn less than $125,000 a year, thanks to Biden’s one-time student loan cancellation. To access this, you must fill out the application, which will be available and will remain open until Dec. 31, 2023. This could eliminate all of your debt — depending on your balance — or shave off a significant portion, making repayment easier on your wallet.

Consider refinancing

consists of replacing your old loans with a new one. If you have good-to-excellent credit, could help you make your payments more manageable in two ways: by lowering your interest rate or by extending your repayment term. However, this last option means that you’ll pay more on interest over the life of your loan, as it will take you more years to pay off your balance. It’s also worth noting that refinancing is mostly a good idea for private student loans, since refinancing your federal student loans would cause you to lose key benefits, like income-driven repayment and access to forgiveness. Refinancing may also be a good idea if you have variable-rate loans, since you can lock in a fixed rate and protect yourself from further interest rate increases. This is especially true if you work in an industry that’s more vulnerable to layoffs during recession periods, such as travel and leisure, retail, manufacturing and real estate, since it can make your payments more predictable.

FAQ

What is a recession

defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

What happens in a recession

During a , all economic activity slows down, from production to spending. This, in turn, causes massive layoffs or a reduction in working hours by employers in order to mitigate losses.

What causes a recession

Recessions can be caused by a variety of factors. These include an overheated economy, a rise in interest rates or the end of a trend, which can cause many businesses to fail at the same time, leading to loss of working hours and economic output.

What happens if you don t pay student loans

Not paying your student loans is tied to some serious consequences, including the following: You could lose eligibility for additional federal student aid (if you default on federal loans). You may see dents in your credit report and score, which could hinder your ability to buy a house or a car. Your wages could be garnished to repay your debt. Your current balance, as well as any unpaid interest, could become automatically due. You could be taken to court, which entails other charges, like attorney and collection fees. Your institution could withhold your transcripts. You could get your federal benefits and tax refunds garnished. Most federal student loans after 270 days of missed payments, while private student loans often default in as little as 90 days.

When do student loans resume

Federal student loans are currently in an interest-free payment moratorium, which ends on Dec. 31, 2022. That means that repayment should resume in January 2023. To find out when your loans are due, visit your student loan servicer’s website and log into your account. You can also contact your servicer’s customer service team to find out your due date.

Who qualifies for student loan forgiveness

Federal student loan borrowers who work for a U.S. government agency at the state, federal or tribal level or for a qualifying nonprofit organization may qualify for Public Service Loan Forgiveness. This program requires you to make 120 payments while working for that employer, after which the remainder of your student loan balance is forgiven.

Additionally, all federal student loan borrowers earning less than $125,000 a year (or less than $250,000 if married) can qualify to get between $10,000 and $20,000 forgiven under Biden’s one-time student loan cancellation.

What is the average student loan debt

According to an analysis by , the average undergraduate student in the U.S. leaves college with $25,000 worth of student loans. SHARE: Heidi Rivera is a student loans writer for Bankrate. She began her journey in the personal finance space in 2018 and is passionate about collecting data and creating content around higher education and student loans. Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans.

Related Articles