Should You Pay Off Your Student Loans Or Save Your Money?

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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I started my get-out-of-debt journey five years ago with almost $50,000 in debt. At several points, I had to decide whether to prioritize paying off student loans or saving money.

My choice varied according to what was happening in my life at the time and the kind of student debt I faced. In fact, it’s a decision I’m still making. My husband and I have are still repaying $17,000 in student loans from his graduate degree.

Maybe you find yourself wondering if you should save money or pay off student loans. Yet both feel so important — how can you choose? Here are seven questions to help you decide.

Pay off student loans or save? 7 questions to ask

1. Do I need emergency savings?

The first thing to consider is whether you have a sufficient financial safety net — your emergency fund.

An emergency fund should be a buffer of cash that you keep on hand to weather any surprise expenses or emergency costs that life throws your way. This safety net is crucial for helping you avoid future debt and the worst consequences of financial setbacks.

Only you know how big your emergency fund should be to achieve the level of financial security comfortable to you. Some people might be okay with an emergency fund of just $1,000. For me, with a mortgage and two young children, a six-month emergency fund is a must.

You’ll also want to weigh emergency savings against student loans. Depending on the types of student loans you have and the interest you face, your student debt might feel like the emergency. If this is the case, you might choose a minimal emergency fund for now in favor of putting out the burning fire of your student debt.

2. Am I putting funds away for retirement?

Next up is another important financial goal: saving for retirement. When you’re facing student loan payments each month, retirement can feel far off.

However, when it comes to saving for retirement, there is no replacement for an early start. Even small contributions now can be worth thousands more in retirement, with decades in between to grow thanks to compounding interest.

Here are a few other ways saving for the future can be financially savvy:

  • Your student loan interest is tax-deductible, which helps offset this cost
  • Tax-advantaged retirement accounts let you lower your taxable income
  • You get free money when an employer matches your retirement contributions
  • You’ll see how investment rates of return often beat student loan interest rates

Student loan borrowers should think long and hard about whether it’s wiser to repay student debt or save for retirement.

3. Should I save for any major life events?

Consider important future life events for which you’ll need money. Unlike emergencies, these are anticipated and planned. These could include:

  • Moving out on your own for the first time
  • Moving to another city or state
  • A wedding
  • Starting a family
  • Starting a business
  • Going back to college or switching careers
  • Getting a divorce

Just three months into my journey out of debt, for example, I found out I was pregnant with my first child. The timing was less than perfect, but at that point, it couldn’t be helped.

So my husband and I went to work on our budget. We calculated how much we’d need to save to buy baby gear, pay medical bills, and make up for my loss of income on maternity leave. And we scaled back some of our extra debt payments to build out our baby fund.

Spend some time thinking about your student debt and your significant life event. Five years from now, which would you regret more — delaying or not taking this life step, or still having your student debt?

At the same time, don’t lose sight of the financial side of the equation. Think carefully about how far a life event could set back your financial goals or student loan repayment.

4. Is there a major purchase I need to finance?

Along with major life events, you might also want to consider any upcoming major purchases — and how much these could cost you. Specifically, am I more likely to pay a higher interest rate on my future purchase than I’m currently paying on student loans?

For instance, I had undergraduate student debt with an interest rate higher than 6.00%. Because of the higher costs of this debt, paying it off took priority over other savings goals.

We eventually paid off those student loans and only had husband’s graduate student loans with an interest rate of just 3.00%. We discussed whether to use discretionary funds to pay off student loans or save for a home down payment.

After some research, we figured it was unlikely we would get a lower interest rate on our mortgage than what we were paying on these student loans. So we prioritized saving a down payment.

Sure enough, we ended up with a 4.125% rate on our mortgage. And every dollar we paid on our down payment helped limit our interest costs, lower our monthly payments, and even helped us avoid mortgage insurance costs.

5. What do I value most?

Of course, financial calculations and returns on investment are just one side of the equation. The other factor in any financial decision, including whether to save money or pay off student loans, is you. Specifically:

  • What is most important to you?
  • What are your goals and dreams?
  • How comfortable are you with being in debt?
  • What kind of lifestyle do you want?
  • What are you willing to sacrifice to achieve this?

When you consider financial questions alongside your personal goals, you can have more clarity to decide what’s really important.

Our personal values were another big reason we decided to pay only the minimums on our student debt and prioritize saving for a home. I didn’t feel the homeownership itch, but my husband did. And he was willing to scale back other goals or expenses to do so.

You might have similar goals or achievements you value more than repaying student loans, too. Many people will live with student loan payments and interest if it means they can travel more while they are young, or work at a lower-paying job they’re passionate about, or build a robust investment portfolio.

Then again, that might not be you. You might be one of those people for whom debt is a significant source of stress, and you just hate the idea of having it. You place a high value on your financial freedom and the accomplishment of paying off your education. For you, paying extra on student loans would be a higher priority.

6. Can I work on savings and student loans at the same time?

Of course, your finances don’t have to be a zero-sum, all-or-nothing game. It can be possible, and even beneficial, to work toward the goals of repaying student loans and saving money at the same time.

Say you have $300 of discretionary income a month to put toward financial goals. You could put all of this toward either saving or repaying student loans. But you might also want to consider paying $150 to each goal, or $100 to one and $200 to the other.

Getting creative and being flexible in your planning can help you make progress toward more than one goal that’s important to you at once.

For instance, you could stay motivated with temptation bundling — tying your unsexy student debt repayment with a more exciting savings goals. Maybe you reward yourself for every extra $200 paid toward student debt by adding $50 to a vacation fund.

7. Could focusing on one goal help me achieve the other?

Finally, you might want to think through how your goals of saving and paying student loans can work together.

For instance, you might use money-saving strategies to find extra funds to put toward student loans. This can help you pay off student loans faster.

On the other hand, effectively managing your student loans can help you accelerate a savings goal. Refinancing student loans, for example, can cut interest costs or lower monthly payments. Switching federal student loans to an income-driven repayment plan could create enough room in your budget to start contributing to a retirement plan.

Or maybe after doing the math, you realize you could pay off one of your student loans in just six months. And at that point, you’d free up the money you’d been putting toward the monthly payment and could use it to save, instead.

So, you have some extra money left over each month that you can spend to improve your finances. On the one hand, you can see the light at the end of the student debt tunnel. You’ve focused on this debt for long enough that you’re ready for it to be over.

At the same time, you have other financial goals, life events, and big purchases to plan for. If you take some time to focus on what is most important to you not only with your money but in life, you can reach the decision that makes the most sense.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on ourstudent loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.899% APR to 8.179% APR (with AutoPay). Variable rates from 2.570% APR to 6.980% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. SoFi rate ranges are current as of September 14, 2018 and are subject to change without notice. See APR examples and terms. Lowest variable rate of 2.570% APR assumes the current index rate derived from the 1-month LIBOR of 2.08% plus 0.740% margin minus 0.25% AutoPay discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.57%-8.17% (2.57%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Estimated average savings amount is based on 14,659 Education Refinance Loan customers who saved on loans between August 1, 2017 and July 31, 2018. The calculation is derived by averaging monthly savings across Education Refinance Loan customers whose payment amounts decreased after refinancing, calculated by taking the monthly payment prior to refinancing minus the monthly payment after refinancing. We excluded monthly savings from customers that exceeded $4,375 and were lower than $20 to minimize risk of data error skewing the savings amounts. Savings will vary based on interest rates, balances and remaining repayment term of loans to be refinanced. Borrower’s overall repayment amount may be higher than the loans they are refinancing even if monthly payments are lower.

2.57% – 6.98%3Undergrad
& Graduate
Visit SoFi
2.47% – 5.87%1Undergrad
& Graduate
Visit Earnest
2.47% – 8.03%4Undergrad
& Graduate
Visit Lendkey
2.80% – 6.22%2Undergrad
& Graduate
Visit Laurel Road
2.48% – 6.25%5Undergrad
& Graduate
Visit CommonBond
2.57% – 8.17%6Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.