Million of Americans are struggling with their student loans. We’ve written recently about underemployed college grads working at minimum wage jobs, but now the number of those that will be hard pressed to make their student loan payments may soon be increasing. The budget impasse that has led to sequester is resulting in furloughs and pay cuts for many government workers and for those who owe student loans, the sting may be worse. Will those hit hardest be able to service their loans? If they fall behind, will they be able to recover?
Most public employees will be hit by sequester-driven furloughs. Pay cuts will average between 5% and 20%. And for those who routinely work overtime, that payday boon will likely dry up as well and combined with unpaid furlough days, this will represent a pay cut closer to 40%! For many, this will mean a financial hit that may leave them having to pick and choose which debts they’ll pay.
Which government agencies will be affected?
The IRS will have five mandatory unpaid furlough days over the summer for every single staffer. This represents a 10% pay cut. 800,000 civilian workers at the Department of Defense will lose 14 days which equates to 5% of working days lost. EPA employees will lose 10 days and the Department of Education an unknown number. The Federal Courts, Homeland Security, HUD, Interior Department, Labor Department and NLRB all have planned furlough days. As well, NASA may have to terminate over 20,500 contractors.
And it’s not just federal agencies that face the economic impact of the sequester. State education budgets are losing federal funds and teachers at local schools near you may be hit with furlough days as a result. Many of these teachers have student loans also and making payments may be a challenge. It’s not just teachers either – specialists such as speech therapists may lose hours. For parents working closely with therapists on their child’s speech issues, they may be able to make up the short-fall, but for others, this is another impact of the furlough that extends beyond the financial.
How will this impact student loan debtors?
For many, mandatory furloughs may mean that they will have to skip payments. One federal worker in Albany told CNN the cut in her $37,000 pay will mean her take home pay will drop by $410 per month for several months and Laurie Vroman will have to sacrifice her $250 student loan payment to make ends meet. She told the news outlet, “I have to put a roof over my head… so paying off my student loans is going on the back burner.”
A 2012 survey by the Young Government Leaders found that the average debt load of younger federal employees was a whopping $47,400. A debt load this size would result in monthly payments of around $465. For many, their pay cuts are this large or larger. Sacrificing the student loan payment would allow federal employees to be able to continue paying rent or mortgage and put food on the table if their household budgets are, like so many Americans, tight right now.
What can you do if you’re slated for furlough and won’t be able to pay?
As soon as you get your furlough letter, contact your lender and ask to temporarily put your loan in forbearance. This will keep you from showing as delinquent on your credit report and, if you’re already a little behind on payments, could keep you from falling into delinquency.
Forbearance allows you to temporarily stop making payments on your student loan, make smaller payments or get an extension on payment due dates. Depending on your lender, you may also be allowed an automatic temporary forbearance while they’re processing your request and determining eligibility.
For any student loan borrower, Tuition.io’s free student loan tool can help track and manage loans. If you’re facing a furlough, you can use our tool to view repayment options and contact your lenders for help before your student loans become unmanageable. Stephanie Halligan of The Empowered Dollar believes it’s important not to get too mired in financial stress over your student loans and suggests treating yourself (on the cheap) to de-stress. Halligan says, “I’ve realized there are a lot of little (and affordable) things that I can do to make me feel good while I’m in the process of digging out of debt.”
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Dealing with loan servicers and personal finance can be frustratingly complex. Tuition.io offers a free service that lets student loan borrowers manage all of their student loans in one clear, easy-to-use dashboard.