Yes, You Can Save While Paying Down Student Loans

Paying off your student loans is an important commitment in your financial life. But it doesn’t mean other goals should be put on the back burner until you’re totally free of your college debt. Here are a few easy but effective ways to tackle student loans while simultaneously saving for the future.

Pick a Realistic Timeline

The average borrower takes on about $30,000 to pay for college,¹ and the Department of Education assumes a repayment timeline that typically spans ten years, or up to 30 years for consolidated loans.² Because your unique financial situation impacts how long it will take you, identifying a realistic timeline is an important step in figuring out how to pay down debt, build your savings—and stay motivated to do both for the long term.

Figure out a practical debt paydown timeline by tallying how much you owe compared to your income and other financial obligations. Make a list of personal financial goals you'd like to work toward and plot them against the next 1-4, 5-20 and 20+ years—and make note of any wiggle room. As you continue to pay the minimum amount due on your student loans each month, this approach may help you see when and where you have leeway to dedicate some money to saving toward other goals. Remember that saving early and often is key to getting to your target. After all, setting aside just $50 a month could mean having $600 saved one year from now!

Know Where Your Money Goes

For at least one month, commit to tracking every dollar you spend so you know exactly where your money is flowing—and if reality aligns with your intentions. If your tracking reveals that you can't afford to save much money after you've accounted for essential expenses and student loan payments, consider making some small but empowering changes. For example, sticking to a grocery list or cooking one meal at home that you'd normally eat out could mean an extra $10-20 in your pocket each week. (That’s $40-80 you could put into a savings account each month, without much sacrifice). Likewise, a simple temporary side gig, like pet sitting for a neighbor or reselling some unwanted items at a consignment shop, could help you generate extra cash you can use to start saving. Instead of viewing such changes as sacrifices, consider them important moves toward having the financial life you want.

Use the Tangible Value of Having Savings to Stay Motivated

Knowing that you owe more money than you “own” in the form of savings can be stressful, and financial stress can impact your quality of life. Stay motivated by remembering the tangible benefits of having a financial reserve. Not only can a savings account be a financial safety net of sorts, potentially helping you avoid high-interest rate loans or credit cards if you have a financial emergency, but it can also be a bridge to help you meet your obligations in the event of job loss or illness. Experts recommend that you set an initial goal of saving at least three months’ worth of living expenses and eventually build up to six months’ worth. Break that big goal into manageable steps by establishing automatic contributions from each paycheck into an interest-bearing, fee-free savings account that’s separate from your day-to-day accounts.

Looking to the future, remember that contributing even small amounts to a retirement account, such as your employer’s 401(k) plan or an individual retirement account (IRA) outside of work, can really add up if you start early. For example, the IRS explains that a person who saves just $50 a month for retirement for 20 years will have $23,218 saved, assuming a 6% annual return.³ If your employer offers to match your retirement contributions up to a certain amount, consider contributing at least enough to take full advantage of that important benefit.

Leverage Tools That Make Saving and Managing Debt Easier

Debts carrying the highest interest rates technically cost you the most money to carry each month. The sooner you pay them off, the more money you'll have to pay down remaining debts and fund a savings account. Make a list of all your outstanding student loans and the interest rate on each; prioritize the one or two with the highest rates while paying at least the minimum amount due on the others. If you get a bonus, cash gift around the holidays, annual raise or tax refund, consider putting some or most of it toward your highest interest rate loans and the remainder toward savings to fuel both of your goals at the same time. And leverage free tools like debt calculators that make it easier to understand how long it will take to eliminate your debt, and how much you should try to save each month to reach your savings goals.

¹ U.S. News, “See 10 Years of Average Total Student Loan Debt,” September 2021

² Department of Education, Federal Student Aid, June 2022

³ IRS, Retirement Topics - Benefits of Saving Now, Accessed April 2022