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After four (or more) years of classes, college students graduate into a new reality of employment and student loan payments. Navigating repayment may require planning and budgeting, but it’s possible to find a repayment plan that works for your personal needs.
As a general rule of thumb, the Consumer Financial Protection Bureau (CFPB) recommends limiting the total borrowed to no more than your expected starting annual salary when you leave school. 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.
Read on to learn about some potential strategies for student loan repayment to help borrowers determine what percentage of income should go to student loans.
Key Points
• College graduates should aim to limit their total student loan debt to no more than their expected starting annual salary to manage repayment effectively.
• Calculating monthly loan payments as a percentage of income can help borrowers assess their financial situation and adjust budgets accordingly.
• The 50/30/20 budgeting rule can be adapted to prioritize debt repayment by reallocating funds from discretionary spending to loan payments.
• An income-driven repayment plan with flexible payment options linked to income may be an option for borrowers struggling with standard repayment plans.
• Exploring additional income sources or refinancing options can provide borrowers with strategies to accelerate student loan repayment and reduce overall interest costs.
Calculate How Much Your Loans Cost Each Month
You’ll want to understand how much your loans cost 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.
After calculating your monthly loan payments, if 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.
You can use a student loan calculator to estimate how different loan terms and interest rates may impact your total repayment. 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.
đź’ˇ Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
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 (see link above) 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 for needs
• 30% of your income goes to “wants” and discretionary expenses
• 20% of your income is allocated for savings and paying off debt like student loans
Using this general framework may 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 one-time student loan and other debt 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 (IDR). On an income-driven repayment plan, your monthly payments are determined as a percentage of your income.
There are currently three options for income-driven repayment. Depending on the plan you enroll in, the repayment term is extended to 20 to 25 years, and payments are capped at 10% to 20% of your income. More precisely, the payment amount is calculated as a percentage of your discretionary income.
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.
The good news is that if you still have a balance at the end of the repayment term on the Income-Based Repayment (IBR) plan, your remaining debt could be discharged (although it may be taxed). The other plans (PAYE and ICR) no longer lead to loan forgiveness, but you could get credit for your payments by switching to IBR.
Note that PAYE and ICR will close soon due to legislative changes, and a new option will be introduced called the Repayment Assistance Plan (RAP). You have until July 1, 2027 to apply for PAYE or ICR, but you’ll have to switch to IBR or RAP once those plans shut down.
Recommended: Should You Refinance Your Student Loans?
Making Extra Payments Based on Your Monthly Income
If you would like to accelerate your student loan repayment, consider paying an additional percentage of your disposable income toward student loans. For example, if you are using a 50/30/20 budget, but want to make additional overpayments, you may instead choose to do a 50/25/25 budget, where you reduce your discretionary spending by 5% each month and apply those funds as an additional student loan payment instead.
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 save you in interest.
Recommended: 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 extra 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. It’s money you didn’t have before, so your budget won’t have to make any sacrifices.
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 your aunt, you could contribute that money to your student loans instead of spending it on a splurge expense for yourself.
Student Loan Refinancing
Finally, you can also improve your existing federal or private student loan situation. Student loan refinancing could help you secure a lower interest rate, which could mean spending less money over the life of the loan.
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, though it could mean a lower monthly payment if you need to free up some cash.
When you apply to refinance 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 for 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.
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 federal loan forgiveness and deferment.
To find out how student loan refinancing could impact 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 community events. You can start the application online and find out what interest rate you prequalify for in just minutes.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
What percentage of income is too much for student loans?
The percentage of income that’s too much for student loans depends on your specific financial situation and goals. However, one common rule of thumb is that student loan payments shouldn’t be more than 10% of your income.
Can you pay more than your required monthly student loan payment?
Yes, you can pay more than your required monthly student loan payment. Student loans generally have no prepayment penalties. And by putting extra money toward your loan, you may pay it off faster. Ask your loan servicer to apply the additional funds to the principal of your loan, which could help reduce the amount of interest you pay over the life of the loan.
How do income-driven repayment plans determine your monthly payment?
Current income-driven repayment plans base your monthly payments on your discretionary income and family size. Depending on the plan you enroll in, monthly payments are capped at 10% to 20% of your income for 20 to 25 years.
However, as of July 1, 2026, there will be just one income-driven plan: the Repayment Assistance Program (RAP). On RAP, payments will range from 1% to 10% of your adjusted gross income for up to 30 years.
Should I pay off student loans faster or save more for retirement?
There is no one-size-fits-all answer to this question. Whether you should pay off student loans faster or save more for retirement depends on your unique financial situation and goals. Consider what is more important to you — reducing debt or putting money toward the future. For instance, if you have high-interest debt such as credit card debt, you may want to focus on repaying that first since it can be costly, and then work on saving for retirement and/or paying off your student loans faster.
How does refinancing affect my student loan payment percentage?
Student loan refinancing gives borrowers a new interest rate and loan terms. If you qualify for a lower interest rate, your monthly payments could be reduced, with less going toward interest, thus making your monthly payments a smaller percentage of your income.
You could also choose to shorten your loan term, which could increase your monthly payments but allow you to pay off your loan faster. You can explore the different refinancing scenarios and see what you might qualify for. But be sure to keep in mind that refinancing federal student loans makes them ineligible for federal benefits.
SoFi Student Loan Refinance SoFi Loan Products
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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