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After four (or more) years of classes, college students graduate into a new reality: employment and student loan payments. Navigating repayment may require planning and diligent budgeting, but with the right foundation, you can find a repayment plan that works for your personal needs.

A general rule of thumb suggests that students avoid borrowing more than 20% of their discretionary income. But, when young students are selecting colleges and evaluating costs, it can be tough to understand or predict how much they’ll earn after graduating.

Here are some potential strategies for student loan repayment so you can determine what percentage of your income should go to paying student loans.

Calculate How Much Your Loan Costs Each Month

You’ll want to understand how much your loan costs each month. If you only have one student loan, this may be easy — the total would be your monthly loan payment.

If you have multiple loans with different lenders, you may have to do a bit more math to sum up the total amount you are spending on your loan payments monthly.

If, after calculating your monthly loan payments, you find you are spending a much higher percentage of your income on debt payments than you have outlined, you may want to adjust your budget, or see if you can adjust how much you are paying each month to your student loans.

Keep in mind that lengthening the loan term on your student loans may result in lower monthly payments, but may cost more in interest over the life of the loan.

Determining Your Student Loan Payment as a Percentage of Income

When it comes to repaying your student loans, your first goal might be to make, at the very least, the minimum monthly payment on each of your student loans. Failing to do so means your loan could become delinquent, and after 90 days of delinquency, your loan servicer can report the late or missed payments to the credit bureaus and your credit score may be affected.

If you don’t know what your monthly payments are, you can use our student loan calculator to get an estimate. It can give you a good idea of what you’ll pay each month.

To calculate the percentage of your income, divide your total monthly loan payment by your income. For example, if your monthly loan payment was $400 and your monthly income was $5,000, your loan payment would be 8% of your monthly income.

Consider the 50/30/20 Rule and Tweak it for Debt

The 50/30/20 budgeting rule outlines spending in the following categories:

•   50% of your income is budgeted toward needs

•   30% of your income is budgeted toward wants and discretionary expense

•   20% of your income is allocated for savings and paying of debt

Using the general framework can help borrowers create a budget that makes sense for their lifestyle and needs, without being overly prescriptive. If you have a lot of student loan debt that you are focusing on repaying, you can adjust the percentage allocation so that you are funneling more money toward your debt.

Because on-time payments account for 35% of your FICO® score, setting up a budget that helps you make on-time payments each month is one of the best tips for building credit.

Income-Driven Repayment

If you have federal student loans and are struggling to make payments on the standard 10-year repayment plan, one alternative you could consider is income-driven repayment. On an income-driven repayment plan, your monthly payments are determined as a percentage of your income.

There are four options for income-driven repayment, and depending on the plan you enroll in, the percentage of your income used to determine your student loan payment amount ranges from 10% to 20%. More precisely, the payment amount is calculated as a percentage of your discretionary income — the income that is left after taxes and other mandatory charges and expenditures on necessary items.

If you are repaying your loans on an income-driven repayment plan, the term will be either 20 or 25 years, depending on the plan you selected. While income-driven repayment plans might help make monthly payments more manageable, extending the length of the loan means you could end up paying more interest than you would on the standard repayment plan.

Making Extra Payments Based on Your Monthly Income

If you are interested in accelerating your student loan repayment, you might want to consider paying an additional percentage of your income toward student loans. If you are using a 50/30/20 budget, but want to make monthly overpayments, you may instead choose to do a 50/25/25 budget, where you spend an additional 5% each month to make an additional student loan payment.

Only you can determine where you want to focus your financial energy. An online student loan payoff calculator could help determine how much your overpayment could accelerate your loan payoff — and how much this could be saving you in interest.

Recommended: 7 Tips to Lower Your Student Loan Payments

Additional Options for Accelerating Your Student Loan Repayment

If your budget is already lean and you don’t have the room to contribute an additional percentage of your income toward student loans every month, there are alternatives that could help you speed up your repayment plan.

Part-Time Job or Side Hustle

One idea is to pick up a part-time job or find a side hustle that allows you to bring in a little bit of extra cash. Then you could focus all of your side hustle income toward student loan repayment. If it’s money you didn’t have before, so you may not miss it coming in.

Another option is to focus any unexpected or windfall money toward student loan repayment. When you receive a bonus at work or a birthday check from Aunt Edna, you could contribute that money to your student loans instead of spending it on a splurge expense for yourself.

Student Loan Refinancing

And finally, don’t feel like there is nothing you can do to improve your existing federal or private student loans. Student loan refinancing could help you secure a lower interest rate, which could mean spending less money over the life of the loan.

Recommended: Should You Refinance Your Student Loans?

As part of the refinancing process, you’ll be able to select a new repayment term. Shortening the repayment term could also mean you pay less in interest over the life of the loan. You also have the option to lengthen the loan term. If you do, you’ll spend more money in interest over that longer-term, but it could mean a lower monthly payment if you need to free up some cash.

When you apply to refinancing a student loan, lenders will review your credit history and employment history among other factors. Refinancing student loans with bad credit, while possible, may be more challenging. Those with a low credit score or limited credit history may want to consider establishing credit before they apply to refinancing.

Another option for borrowers with a less than stellar credit score may be adding a cosigner to strengthen the application. A cosigner agrees to repay the loan if the primary borrower fails to do so. Refinancing without a cosigner may make sense for borrowers who have had time to establish credit. For more detailed information, visit SoFi’s student loan refinancing guide.

It is important to note that if you refinance your federal loans with a private lender, you will lose access to federal benefits such as loan forgiveness or income-driven repayment plans.

To find out how student loan refinancing could help improve your student loan repayment prospects, use SoFi’s student loan refinance calculator.

The Takeaway

There is no single answer for what percentage of your income should be allocated to paying off student loan debt. It’s important to make your monthly minimum payments to avoid delinquency or default. Beyond that, you may consider making overpayments to accelerate your student loan payoff.

When you refinance with SoFi, there are no origination fees or prepayment penalties and you’ll gain access to unemployment protection and community events. You can start the application online and find out what interest rate you pre-qualify for in just minutes.

Refinancing student loans with SoFi could mean a lower interest rate and faster repayment. Find out if SoFi can help.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.

Choosing a Student Loan Repayment Option

It’s never too early to think about student loan repayment. Whether you just started college, or you recently graduated and are still in the ‘grace period’ before repayment, strategizing now may help you find a student loan repayment plan that works for you before making you make a single payment.

If you’re graduated, working, and already making payments, it can be easy to overlook the other choices. But you can make changes to your student loan repayment plan even if you’re not in a financial crunch.

It’s also a good idea to re-evaluate your repayment plan over time. As your financial circumstances change, the way you want to manage your student loans may shift.

Before considering your options, take inventory of all your student loans. Be sure to list out the principal, the interest rate, the repayment period, and the servicer for each loan.

All federal student loans issued in recent years have fixed interest rates, but private student loans or older federal student loans may have variable rates. If the rate is variable, be sure to note that as well.

Different Student Loan Repayment Options

Once you understand your student loans, it’s time to think about your repayment options. The effortless choice is to do nothing and just pay your bills as they come.

Simply put, it means you pay back your student loan(s) under the interest rate and terms you agreed to when you initially signed the paperwork. For federal student loans, this is formally called the Standard Repayment Plan, and it typically means paying a fixed amount every month for up to 10 years.

There’s no “standard repayment plan” for private student loans; the interest rate may vary based on market factors, and your repayment term might be shorter or longer.

The federal government also offers graduated and extended repayment plans for borrowers. A graduated repayment plan means that the payment starts smaller and grows over time, while the extended repayment plan stretches repayment over a period of up to 25 years and payments may be either fixed or graduated.

There’s nothing wrong with opting for the Standard Repayment Plan — except that for some borrowers, it’s not the most cost-effective choice. Some borrowers may be able to find a more competitive interest rate by refinancing their loans through private lenders.

Others may be eligible for special federal programs that can reduce the amount owed monthly based on financial circumstances, and in some cases, forgive balances if you meet certain requirements.

Here’s an overview of repayment options that may help if you are choosing a repayment plan:

1. Student Loan Consolidation

Federal student loan consolidation allows you to combine multiple federal student loans into a single new loan. You can’t consolidate private student loans using this federal program.

When you consolidate your federal student loans into a Direct Consolidation Loan, it doesn’t necessarily reduce your overall interest rate.

Your new loan’s interest rate will be the weighted average of all the old student loans’ interest rates, rounded up to the nearest eighth of a percent. This means your interest rate might actually be slightly higher than the rate you were paying before consolidation on some of your student loans.

When you consolidate, you’ll also have the option to select a new repayment plan. The Standard plan would still be available, but consolidation can also be a first step toward other plans of action, like loan forgiveness or income-driven repayment.

2. Student Loan Forgiveness

Some federal student loans, and Direct Consolidation Loans, are eligible for modified payment plans that forgive outstanding student loan balances.

Health care professionals, teachers, military service members, and those employed full-time by qualifying nonprofit or public service organizations may be eligible for certain federal student loan forgiveness programs.

Some types of student loan forgiveness aren’t completely free, however. Federal student loan balances forgiven under income-driven repayment plans may be considered income by the IRS, meaning that you might need to pay taxes on that amount.

Those taxes might still be less than paying the forgiven principal amount, but it can be an unpleasant surprise at tax time if you’re not prepared.

One notable exception is the Public Service Loan Forgiveness (PSLF) program. After 10 years of payments on a qualified income-driven repayment plan, those who have worked for qualified employers, such as the government or some nonprofit agencies, can apply for forgiveness of all of their remaining federal student loan balances.

That forgiveness is not considered taxable income.

The Federal Student Aid website has additional information on which federal student loans qualify for which types of forgiveness, cancellation, and/or discharge.

3. Income-Based Repayment

If the payments under the Standard Repayment Plan seem too daunting, federal student loans offer a variety of income based repayment plans, which tie the amount you pay to the discretionary income you earn.

These income-driven repayment plans come in a variety of flavors and configurations, but an important takeaway is that, in some cases, you may end up paying more over the life of the loan than you would have on the Standard Repayment Plan. That’s because, with low monthly payments that stretch out over more years, you could be paying more in interest over time.

Fortunately, new federal regulations will curtail interest accrual in many situations. For instance, if your balance is high, your lower, income-adjusted monthly payments may not cover the interest that accompanies the principal (the set amount of money you’re given when you take out the loan). So rather than shrinking, student loan balances used to grow over time as unpaid interest accumulated.

However, beginning in July 2023, this excess interest will no longer accrue, saving borrowers money. Another upside is that if your job situation is less defined and you know you’ll need to tap the reduced payment rates these plans provide, choosing an income-driven repayment plan makes that possible.

Additionally, you’re still able to qualify for some student loan forgiveness programs if the rest of your student loans aren’t paid off after 20 to 25 years of consistent, on-time payments. However, again, it’s worth keeping in mind that you might be on the hook to pay income taxes on the remaining loan amount that is forgiven, depending on the repayment plan you qualify for.

4. Student Loan Refinancing

Refinancing student loans through a private lender offers the opportunity to consolidate multiple student loans into a single payment and potentially decrease your interest rate.

Loan repayment terms vary based on the lender, and terms and interest rates are often more favorable for those with better credit and earning potential (among other financial factors that vary by lender).

For potential borrowers with an interest in saving money over the life of their student loan, refinancing can provide overall value by offering market interest rates.

One important thing to know about refinancing, however, is that once you refinance a federal student loan into a private loan, you can’t undo that transaction and later consolidate back into a federal Direct Consolidation Loan.

This can be relevant for professionals in health care or education where federal student loan forgiveness plans are offered, or for those considering long-term employment in the public sector.

Further, refinancing federal student loans with a private lender renders them ineligible for important borrower benefits and protections, like income-driven repayment and deferment.

Can You Change Your Student Loan Repayment Plan?

If you have federal student loans, it is possible to change your repayment plan at any time, without any fees. You’ll have the option to choose from any of the federal repayment plan options, including income-driven repayment plans.

There is less flexibility to change the terms of a private student loan. Some private lenders may offer alternative payment plans for borrowers. Check with your lender directly to see what options may be available to you.

SoFi Student Loan Refinancing

Refinancing is another avenue that can result in a new repayment plan. An important consideration, refinancing federal student loans will remove them from any federal programs or protections, so this won’t be the right choice for everyone.

If you’re considering refinancing, take a look at SoFi. Potential borrowers can find out what rates they pre-qualify for in just a few minutes and there are no fees, including origination fees or application fees.

The Takeaway

Federal student loan borrowers have the ability to change their repayment plan at any time, without being charged any fees. And new federal regulations that will curtail interest make the plans a better deal for borrowers. Changing your repayment plan is a bit more challenging for private student loans, though some private lenders may offer alternative options for borrowers. Refinancing is another option that can allow borrowers to adjust their repayment terms.

SoFi offers refinancing loans that are free of any fees and potential borrowers can apply entirely online.

Which student loan repayment plan makes the most sense for you? Consider refinancing with SoFi as an option that could potentially save you money.

FAQ

What student loan repayment options are available to me?

Borrowers with federal student loans can choose from any of the federal repayment plans, including the standard 10-year repayment plan, or income-driven repayment options. For private student loans, repayment options will be determined by the lender.

What is a standard repayment plan for student loans?

The standard repayment plan for federal student loans is fixed monthly payments over a period of 10 years. For consolidation loans, repayment may extend up to 30 years.

How long is a typical student loan repayment?

The typical student loan repayment period may vary from individual to individual. The standard repayment plan for federal loans is 10 years, but income-driven repayment plans or Direct Consolidation loans may have a longer term.

The repayment terms for private student loans vary by lender.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Sometimes, life throws you a curveball. If you’re in college when that happens, you might find yourself dropping out of school. In some situations, you may have no other choice. At other times, you can weigh the pros and cons while deciding how to proceed.

What happens to student loans if you withdraw isn’t widely discussed. We’ll walk you through the consequences of dropping out when you’ve already incurred debt, and show you ways to pay off outstanding student loans.

Do I Have To Pay Back My Student Loans If I Drop Out of School?

Regulations dictate that if you leave college or drop below half-time enrollment, you have to start paying back your federal student loans. You may have a grace period — generally six months — before your first payment is due. Just know that interest can accrue during the grace period.

If you have private student loans, check with your lender to determine when you need to start paying back your loans.

If you’re currently still in school or left very recently, you may be able to request student loan exit counseling from your school, a service normally provided only to graduates. This can help you understand your options, including potential tuition reimbursement. Each school has a different refund policy.

What Happens If I Don’t Pay My Student Loans?

The consequences of late or “delinquent” payments vary by lender, but you can expect to be charged late fees. If a payment is 30 days or more late, that information can be reported to one of the three credit bureaus, which will negatively affect your credit score.

And if you stop paying your student loans for 270 days (about 9 months), your federal loans go from being delinquent to in default. When that happens, the balance is due in full, including accrued interest, collection agency fees, and any other fines, fees, and penalties. Student loans generally cannot be discharged during bankruptcy.

The government can go to great lengths to get their money back, including:

•   Garnishing the paycheck of defaulters, up to 15% of wages after deductions

•   Hijacking their tax refund

•   Going after their co-signers paycheck and tax refund

•   Suing the defaulter — and make them responsible for court fees

Private student loans generally go into default after 90 days. Private lenders may also take you to a court or use collection agencies to recoup student loan debt. Defaulting can wreck your credit, making it challenging for you to obtain a mortgage loan, car loan, credit card, homeowners insurance, or new utilities.

Recommended: Refinancing Student Loans Without a Cosigner

Way To Pay Off Student Loans If You Didn’t Finish School

Once you leave school, it’s a good idea to begin paying off your loans as quickly as you can, paying more than the minimum payment whenever possible. Before paying ahead, though, check to see if any of your student loans have a prepayment penalty. If so, paying early can cost you money.

Should you refinance your student loans? What about income-driven repayment programs? Below are the best options to help ease financial hardship and avoid default.

Income-Driven Repayment Plans

Income-driven repayment plans base your monthly payment on discretionary income and family size. The plans lower monthly payments by extending the length of the repayment period to 20 or 25 years. After that, any remaining loan balance is to be forgiven, though you’ll have to pay taxes on the forgiven amount.

The government offers four income-driven options:

•   Income-Contingent Repayment (ICR)

•   Income-Based Repayment (IBR)

•   Pay As You Earn (PAYE)

•   Revised Pay As You Earn (REPAYE)

Enrolling in an income-driven repayment plan won’t have a negative impact on your credit score or history. However, income-driven plans aren’t always the lowest monthly payment option. And even when monthly payments are lower, you will pay more interest over time (longer loan terms mean more interest payments).

Borrowers must recertify their income each year. If they fail to do so, they’ll be returned to the standard 10-year amortizing plan.

Going Half-Time

Students who are enrolled at least half-time in an eligible college or career program may qualify for an in-school deferment. This type of deferment is generally automatic. If you find the automatic in-school deferment doesn’t kick in, you can file an in-school deferment request form.

Recommended: Refinancing Student Loans with Bad Credit

Refinancing Student Loans

While you’re still able to make your student loan payments and your credit is still good, consider refinancing. You can combine multiple loans into one payment and choose the payback timeline that will give you the lowest monthly payment possible. You can check the interest rate and terms you qualify for by using SoFi’s student loan refinance calculator.

As your financial situation improves, you can make additional payments (as long as you refinance with a company that doesn’t charge a prepayment penalty) or refinance again with a new term that will accelerate payoff and allow you to pay less interest over the lifetime of the loan. You can learn all the ins and outs of that path with this handy student loan refinancing guide.

It’s important to note that by refinancing your federal student loans, you will not be able to access federal programs like income-driven repayment plans, Public Service Loan Forgiveness (PSLF), and government deferment or forbearance. Without a degree, you won’t qualify for Biden’s student loan forgiveness plan, but you can still qualify for PSLF. If you don’t need any of those benefits, a lower student loan interest rate gained by refinancing could be worthwhile.

What To Do If You Can’t Afford Any Student Loan Payments

If you’re leaving school because, for example, you are undergoing cancer treatment or facing a financial emergency in your family, you can request a deferment or forbearance on your federal student loans to give yourself time to address the situation.

Although deferment or forbearance can give you short-term financial relief, these plans will increase the amount of interest you’ll pay on the loans overall, and can extend the length of the loans.

Student Loan Deferment

Student loan deferment allows eligible borrowers to temporarily reduce loan payments or pause them for up to three years, depending on the type of loan. In most cases, borrowers seeking a deferment will need to provide their loan servicer with documentation that supports their eligibility.

Deferments are typically broken down into qualifying categories:

•   Unemployment. Borrowers receiving unemployment benefits or who are actively seeking and unable to find full-time work may qualify. This deferment is good for up to three years.

•   Economic Hardship. Individuals receiving merit-tested benefits like welfare, who work full-time but earn less than 150% of the poverty guidelines for their state of residence and family size, or who are serving in the Peace Corps may qualify. This deferment may be awarded for up to three years.

•   Military Service. Members of the U.S. military who are serving active duty may qualify. After a period of active duty service, there is a grace period of 13-months in which borrowers may also qualify for federal student loan deferment.

•   Cancer Treatment. Borrowers who are undergoing treatment for cancer may qualify. There is a grace period of six months following the end of treatment.

Student Loan Forbearance

There are two types of federal student loan forbearance: general and mandatory. Private lenders sometimes offer relief when you’re dealing with financial hardship, but they aren’t required to, so check your loan terms.

General forbearance is sometimes called discretionary forbearance. That means the servicer decides whether or not to grant your request. People can apply for general forbearance if they’re experiencing financial problems, medical expenses, or employment changes.

General forbearance is only available for certain student loan programs, and is granted for up to 12 months at a time. At that point, you are able to reapply if you’re still experiencing difficulty.

Mandatory forbearance means your servicer is required to grant it under certain circumstances. The Federal Student Aid website has a full list of criteria for mandatory forbearance. Reasons include:

•   Medical residency or dental internship

•   Participating in AmeriCorps

•   Teachers who qualify for teacher student loan forgiveness

•   National Guard duty

•   Monthly student loan payments that are 20% or more of your gross income

Similar to general forbearance, mandatory forbearance is granted for up to 12-month periods, and you can reapply after that time. You still have to pay interest on all types of federal loans while they’re in forbearance.

If you’re pursuing federal student loan forgiveness, any period of forbearance probably will not count toward your forgiveness requirements.

The Takeaway

Should you unexpectedly need to drop out of school, you’ll still be responsible for paying back your student loans. If you’re able to work, you may want to enroll in an income-driven repayment plan — though keep in mind that these programs don’t always offer the lowest monthly payment possible.

If you are unable to work, see if you’re eligible for student loan deferment or forbearance. Finally, if you have a strong credit history, refinancing your student loans may save you money on interest while lowering your monthly payment. Just be aware that refinancing federal loans means losing access to federal protections and PSLF loan forgiveness.

Refinancing student loans with SoFi allows you to consolidate both federal and private loans. You can choose between fixed and variable rates, and select your payback term from multiple options. There are no prepayment penalties and no hidden fees. And you can find out your rate online.

Ready to refinance your student loans? Get started at SoFi in just two minutes

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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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It’s a common dilemma: Should you pay off credit cards or student loans first? The answer isn’t totally cut and dried. But if your credit card interest rates are higher than your student loan interest rates, paying down credit cards first will probably save you more money in interest.

But don’t stop there. Keep reading to learn how to calculate what’s best for your situation, and why. Along the way, you’ll learn more about how credit cards work, the complexities of student loans, and two very different strategies for paying down debt.

Prioritizing Your Debts

Experts are split over the best debt to pay off first. Some recommend you tackle the smallest balance first because of the psychological boost that comes from erasing a debt entirely.

However, from a purely financial standpoint, you’re better off paying off the debt that carries the highest interest rate first. That’s because the higher the interest rate, and the longer you hold the debt, the more you end up paying overall. This usually means tackling high-interest credit card debt first.

Keep in mind that prioritizing one debt over another does not mean that you stop paying the less urgent bill. It’s important to stay on top of all debts, making at least minimum monthly payment on each.

Failing to make bill payments can hurt your credit score, which can have all sorts of effects down the road. For example, a poor credit score can make it difficult to secure new loans at low rates when you want to buy a new car or home, or to take out a business loan.

You might consider setting up automatic payments on your loans. Automatic payments can make it easier to pay bills on time and juggle multiple payments.

If you’re having trouble making your monthly payments, consider strategies to make your payments more manageable, such as refinancing.

Student Loan vs Credit Card Debt

Before we get into if it’s better to pay off credit cards or student loans first, let’s look at how each debt is structured.

Student Loan Debt

A student loan is a type of installment loan used to pay for tuition and related schooling expenses for undergraduate or postgraduate study. Borrowers receive a lump sum, which they agree to pay back with interest in regular installments, usually monthly, over a predetermined period of time. In this way, student loans are similar to other installment loans such as mortgages, car loans, and personal loans.

At a high level, there are two types of student loans: federal and private. The U.S. government is the single largest source of student loans. Federal student loans have low fixed interest rates: Current rates are 4.99% for undergrad loans, and 7.44% for graduate and professional loans. These loans come with protections like income-driven repayment plans, deferment and forbearance, and loan forgiveness.

Private student loans are managed by banks, credit unions, and online lenders. They may have a fixed or variable interest rate, which is tied to the borrower’s credit score and income. Average interest rates range from 3.22% to 13.95% for a fixed rate, and from 1.29% to 12.99% for variable.

Private student loans don’t come with the same protections as federal student loans. For instance, they are not eligible for President Biden’s loan forgiveness plan.

Payback timelines vary widely. As with other loans, the longer your repayment timeline, the lower your monthly payment will be — but you’ll pay more in interest over the life of the loan. The shorter your repayment period, the larger your monthly payment, and the less interest you’ll pay.

Recommended: Types of Federal Student Loans

Credit Card Debt

Credit cards offer a type of revolving credit, where account holders can borrow money as needed up to a set maximum. You can either pay off the balance in full or make minimum monthly payments on the account. Any remaining balance accrues interest.

Credit cards usually come with higher interest rates than installment loans. The average credit card interest rate in September 2022 was 21.59%. But an individual credit card holder’s rate depends on their credit score. People with Excellent credit will pay an average of 18.04%, while those with Bad credit will pay closer to 25.14%.

Depending how the account is managed, credit card debt can be either very expensive or essentially free. If you always pay off credit cards in full each month, no interest usually accrues. However, if you make only minimum payments, your debt can spiral upward.

Recommended: Taking Out a Personal Loan to Pay Off Credit Card Debt

Should I Pay Off Credit Card or Student Loan First?

When it comes to student loan vs credit card debt, there’s no universal answer that fits everyone in every situation. A number of factors can tip the scales one way or another, especially the interest rates on your loan and credit card.

We’ll explore two scenarios: one in which paying off credit cards is the best move, and another where student loans get priority.

The Case for Paying Down Credit Cards First

If you are carrying high-interest credit card debt, you’ll likely want to focus on paying off credit cards first. As you saw above, the average credit card interest rate (21.59%) is significantly higher than the maximum student loan interest rate (13.95%). Even if your credit card interest rate is lower than average, it’s unlikely to be much lower than your student loan’s rate.

Credit card debt can add up quickly, and the higher the interest rate, the faster your debt can accumulate. Making minimum payments still means you’re accruing interest on your balance. And as that interest compounds (as you pay interest on your interest), your balance can get more difficult to pay off.

A high balance can also hurt your credit score, which is partially determined by how much outstanding debt you owe.

Paying Off Credit Card Debt

Once you decide to focus on paying off credit cards first, start by finding extra funds to send to the cause. Look for places in your budget where you can cut costs, and direct any savings to paying down your cards. Also consider earmarking bonuses, tax refunds, and gifts of cash for your credit card payment.

Next, make a list of your credit card balances in order of highest interest rate to lowest. The Debt Avalanche method refers to paying off the credit card with the highest interest rate first, then taking on the credit card with the next highest rate.

It bears repeating that focusing on one debt doesn’t mean you put off the others. Don’t forget to make minimum payments on your other cards while you put extra effort into one individual card.

You may also choose to use a Debt Snowball strategy. When using this method, order your credit cards from smallest to largest balance. Pay off the card with the smallest balance first. Once you do, move on to the card with the next smallest balance, adding the payment from the card you paid off to the payment you’re already making on that card.

The idea here is that, like a snowball rolling down a hill gets bigger and faster as it rolls, the momentum of paying off debt in this way can help you stay motivated and pay it off quicker.

Managing Your Student Loans

Meanwhile, it’s important that you continue making regular student loan payments while you’re prioritizing your credit card debt. For one thing, you shouldn’t just stop paying your student loans. If you do, federal student loans go into default after 270 days (about 9 months). From there, your loans can go to a collections agency, which may charge you fees for recouping your debt. The government can also garnish your wages or your tax return.

You can, however, typically adjust your student loan repayment plan to make monthly payments more manageable. If you have federal loans, consider an income-driven repayment plan, which bases your monthly payment on your discretionary income.

While this may reduce your monthly student loan payments, it extends your loan term to 20 to 25 years. That can end up costing you more in interest. So make sure the extra interest payments don’t outweigh the benefits of paying down your credit card debt first.

Refinancing Your Student Loans

It can also be a smart idea to refinance student loans. When you refinance a loan or multiple loans, a lender pays off your current loans and provides you with a new one, ideally at a lower rate.

You can use refinancing to serve a couple of purposes. One option is to lower your monthly payment by lengthening the loan term. This can free up some room in your budget, making it easier to stay on top of your monthly payments and redirect money to credit card payments. Just remember that lengthening the loan term can result in you paying more interest over the course of your loan.

Or you can shorten your loan term instead. This can be a good way to kick your student loan repayment into overdrive. Your payments will increase, but you’ll reduce the cost of interest over the life of the loan. In other words, you’re giving equal weight to paying off your student loans and your credit card debt.

When you refinance with SoFi, there are no origination or application fees. And as a SoFi member, you’ll have access to member benefits like unemployment protection, which can allow you to temporarily pause your payments if you lose your job. However, refinancing your student loans with a private lender means you’ll lose access to federal loan benefits, such as income-driven repayment plans, forbearance, and deferment.

To see how refinancing with SoFi can help you tackle your student loan debt, take advantage of our student loan refinancing calculator.

Take control of your debt by refinancing your student loans. You can get a quote from SoFi in as little as two minutes.

FAQ

Should you pay off your student loans or your credit cards first?

The answer depends on a number of factors, especially the interest rates on your loans and credit cards. But if your credit cards carry high interest rates, you’ll likely save more money in interest by paying off your credit cards before your student loans.

What is the best debt to pay off first?

From a purely financial perspective, it’s best to pay off your highest interest-rate debt first. This is called the Debt Avalanche method. Paying off the most expensive debt (usually credit cards) first will save you the most money in interest.

Is it smart to pay off credit card debt with student loans?

This is probably not a good idea. First of all, paying off credit cards with student loans may violate your student loan agreement, which limits the use of funds to tuition and related expenses. If you use a credit card exclusively for educational expenses like textbooks and computers, you might be able to use loan funds to pay it off. However, you should check your loan agreement carefully to make sure this is allowed.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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The amount of student loan debt a person takes on can vary based on factors like the type of school they attended, whether or not they pursued an advanced degree, and whether they received any scholarships or not. According to data from The College Board, college graduates from the class of 2020 graduated with an average of $28,400 in student loan debt. Continue reading for more information on average student loan amounts.

Average Student Loan Debt After College

As of October 2022, the total amount of student loan debt was approximately $1.7 trillion and there are over 42.8 million borrowers in the country.

That means there are a lot of us trying to understand and navigate the student loan landscape. How much are we borrowing? And what can we do to decrease the amount we owe?

As briefly mentioned, The College Board found that cumulative debt levels upon graduation — meaning the debt students had accumulated over the four years of undergrad — was $28,400 per borrower for those graduating in 2020 (the latest stats available). And nearly 54% of all graduates carried student loan debt.

How Average Student Loan Debt Has Changed in the Last 10+ Years

It’s no secret that college is expensive and has only gotten more expensive in the last 10 years. According to data compiled by U.S. News, the cost of attending college with in-state tuition at public National Universities increased by nearly 175% from 2002 to 2022.

Over roughly that same period of time (from 2010 to 2020), total outstanding student loan debt grew from $845 billion to $1.7 trillion in order to cover those costs. Though as of the third quarter of 2022, the total outstanding federal student loan debt is $1.6 trillion. This student loan debt crisis is taking a financial toll on graduating students, potentially affecting their credit and home-buying prospects.

Recommended: Scholarship Search Tool

Average Student Loan Debt

There is good news, though: the growth of student loan debt is slowing. While the average student loan debt continues to grow slightly, it’s leveled off in recent years. The average cumulative student debt was $23,765 for 2009 graduates. The class of 2021 had a cumulative average of $29,719 according to U.S. News .

Public vs Private Four-Year Schools Student Loan Debt

The College Board’s annual survey of trends in student aid 2021 found that graduates of public four-year institutions had an average college debt of $26,700, compared to private school borrowers, who graduated with an average debt of $33,600.

It should be noted that numbers for for-profit schools are harder to come by, but what is true across analyses is that students at for-profit schools take out more in student loans and default at higher rates.

Recommended: College Finder Tool

Undergraduate vs Graduate Student Debt

Let’s look at this from a different angle. How does undergrad debt compare to grad school debt? The College Board’s annual survey of student aid trends found that on average, undergraduates took out $6,470 in either subsidized or unsubsidized federal loans in the 2020-2021 school year. That same year, graduate students took out $18,800 in subsidized or unsubsidized federal loans.

If you are planning to get an advanced degree, prepare for a potential mortgage-sized debt load. As an example, over half of people with law degrees have at least $150,000 in student loan debt according to the American Bar Association’s 2021 Law School Student Loan Debt survey.

The Average Student Loan Debt for Borrowers Under 25

There are about 6.9 million people under the age of 24 with student loan debt. As a group, they owe just over $101 billion, according to the U.S. Department of Education’s Q3 2022 report .

Average College Debt by State

When we look at the average student loan debt broken down by school and region, it also becomes clear there is a range of highs and lows across the country. The Institute for College Access and Success (TICAS) puts together a comprehensive report on national student debt, using numbers self-reported to college guide publisher Peterson’s from thousands of colleges and universities.

The numbers reported by schools vary but it does allow for a geographic look at the average student loan debt by state.

The highest debt states in 2020, the last year for reported numbers, were New Hampshire ($39,928), Delaware ($39,705), Pennsylvania ($39,375), and Rhode Island ($36,791). The states where college graduates had the lowest average debt were Utah ($18,344), New Mexico ($20,868), California ($21,125) and Nevada ($21,357).

Average Student Loan Payment

A borrower’s monthly student loan payment can vary quite a bit depending on the amount of debt they carry and the type of payment plan they have selected. According to data from the Federal Reserve, typical payments for student loans can range from $200 to $299. Though, as noted, your monthly payments may be more or less depending on factors like your loan amount and payment plan.

How Long It Takes to Pay Off Student Loans

But even as the growth of new student loan debt is slowing, there continue to be outstanding student loan amounts that haven’t yet been paid off — which helps to explain why the total loan balances are hitting record highs.

If you have a federal loan when you graduate, you can choose a repayment plan. The default option is the Standard Repayment plan, which is 10 years of fixed monthly payments.

Recommended: Student Loan Repayment Options

There are a few other options that extend the repayment term or allow you to repay on an income-driven plan. Many graduates take longer than 10 years to pay back their loans, and about a third of borrowers have gone into student loan default in the past 20 years, according to survey data from The Pew Charitable Trusts .

Though, it’s worth noting that the U.S. Department of Education announced in April 2022 that it would eliminate the negative consequences for those with defaulted student loans as a part of the student loan pause that began due to Covid-19 and was extended by the Biden-Harris administration.

There isn’t a lot of data on exactly how long it takes students to pay off their student loans, partially because it varies based on how big your loan amount is and partially because some numbers count consolidation as loan repayment — when in reality you’ve taken out a new loan with different terms.

The U.S. Department of Education lists the maximum repayment timelines for Direct Consolidation loans, which for borrowers holding between $20,000 and $40,000 in student loan debt is 20 years. Direct Consolidation loans allow borrowers to consolidate their federal loans into a single loan.

Recommended: Student Loan Options: What is Refinancing vs. Consolidation?

But it is worth noting: the sooner you pay off your loan, the more you save in the long run because you aren’t accruing interest for as long. Part of the reason so many students struggle to make payments is that their student loan payments are large in comparison to their incomes.

The interest rate can be a big factor in that. While interest rates on federal student loans are fixed and set annually by the government, interest rates on private student loans can range from 3% to 13%. Use SoFi’s student loan calculator to figure out how your monthly payments could change at different interest rates.

Refinancing Student Loans With SoFi

Those looking for options to manage student loan payments might consider student loan refinancing. This process involves borrowing a new loan from a private lender. Lenders review applicant credit history and earning potential (among other financial factors) to determine the new loan terms, with a new, hopefully, lower interest rate.

Borrowers who refinance student loans with a private lender may also be able to adjust their repayment term. Extending the term could lower monthly payments but may end up making the loan more expensive over the life of the loan.

Those who want to continue to take advantage of federal loan benefits like income-based repayment may not want to refinance with a private lender, because all federal student loan benefits are lost when a federal student loan is refinanced.

It takes just a few minutes to get a quote to see what refinancing with SoFi could do for your student loans. The application is entirely online and there are no fees.

Learn more about refinancing your student loans with SoFi.

FAQ

Is $50,000 a lot of student debt?

Yes, $50,000 is a lot of student loan debt. According to data from The College Board, the average amount of debt a 2020 graduate carried was $28,400.

How many people have student loan debt in the US?

In the U.S. as of Q3 2022, there are approximately 42.8 million people who have student loan debt, according to data from the U.S. Department of Education.

What is the average someone pays a month for student loans?

The average someone pays per month for student loans will vary based on factors like the total loan amount and the repayment plan they have selected.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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