Challenges for Borrowers Amid a Slowing Job Market
The U.S. economy added only 22,000 jobs in August, significantly below expectations, while the unemployment rate rose to 4.3%, the highest in nearly four years, according to the Bureau of Labor Statistics report released on September 5. This slowdown poses challenges for millions of Americans holding student loans, particularly those who have recently lost their jobs or are struggling to find new employment.
Options to Reduce or Pause Student Loan Payments
More than 40 million Americans collectively owe over $1.6 trillion in student loan debt. For borrowers facing unemployment, several federal relief options exist to manage payments during financial hardship.
Unemployment Deferment allows borrowers who are receiving unemployment benefits or actively seeking full-time employment to temporarily pause their student loan payments. However, eligibility criteria apply, and interest may continue to accrue on certain loans during this period.
Economic Hardship Deferment is another option for borrowers receiving public assistance or earning below specified income thresholds. The number of borrowers utilizing Economic Hardship Deferment doubled from approximately 50,000 in Q3 2024 to 100,000 in Q3 2025, according to higher education expert Mark Kantrowitz. Meanwhile, enrollment in Unemployment Deferment rose from 140,000 to 180,000 over the same period.
Both deferments generally have a three-year lifetime limit. Notably, recent legislation will eliminate these deferment options for borrowers taking out loans after July 1, 2027, though current borrowers will retain access.
Forbearance and Private Loan Considerations
If borrowers do not qualify for deferments, they may still be eligible for a general forbearance, which similarly pauses payments but often with continued interest accrual. Kantrowitz advises borrowers to confirm whether interest will accumulate during any nonpayment period and, if possible, to make interest payments to avoid an increased balance when repayments resume.
Borrowers with private student loans typically have fewer formal relief options following job loss. Experts recommend proactively contacting lenders to discuss individual circumstances and potential accommodations.
FinOracleAI — Market View
The recent rise in unemployment and slowing job growth increase financial pressure on student loan borrowers, likely driving demand for deferment and forbearance programs. The phased elimination of key deferment options for new loans after 2027 may lead to tighter borrower protections over time. Lenders and policymakers should monitor borrower distress levels and adapt relief measures accordingly.
Impact: neutral
