I'm trying to decide whether or not I should pay off my student loans now or save the cash in a savings account. Interest rates are below. For 3 months, I'll have ~$2,000/month after expenses to spend on loans or to put toward saving. After those 3 months, I'll probably have closer to $500 or $600/month to pay off loans or save.

How should I prioritize that money?

Table: Student Loans and Interest Rates:

Rate     Amount
6.800    $2,301 
6.800    $2,439 
4.660    $5,220 
4.660    $7,085 
3.860    $2,010 
3.400    $3,246 
3.400    $4,250 

Min. Monthly Payment: $210.00

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    Now, the question is - Do you work for a company with a matched 401(k)? Do you deposit up to the full match? What do you have in savings now? Feb 9, 2017 at 22:59
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    Also, what tax bracket do you earn in? What are your short/long term goals that you might be saving for? Feb 9, 2017 at 23:32
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    What are your monthly expenses/income? I ask because you should have the equivalent of six months expenses or income in emergency savings. If you don't want to answer that question, you could also tell us how short you are of the six months in dollar terms.
    – Brythan
    Feb 10, 2017 at 2:25
  • May be worth looking into refinancing those 6+%, and maybe even the 4.66% loans, you may be able to find something better. There's some firms that handle it completely online and it's really easy to check. If there's nothing better, no real harm done (maybe a very slight, and temporary, nick on the credit score, but probably not significant)
    – PGnome
    Feb 10, 2017 at 15:39

4 Answers 4


If you have no savings, save until you have 3-6 months of expenses. You should always try to have that available if possible, in case you lose your job or have a major medical emergency in the family or similar.

Then, once that is done, put the rest towards your student loans. Preferably hitting those 6+% loans first. Just go down the list - since you don't really have small ones anyway, there's no reason not to.


Have you realized by now that there is no "right" answer?

There was another question, posted nearly 2 years ago Oversimplify it for me: the correct order of investing and your question, while a bit different in how it's asked, can really be addressed with the first snippet of my answer there -

  • 401(k) up to matched amount
  • High interest debt
  • Emergency fund
  • 401(k)/Roth 401(k) / IRA/Roth IRA
  • Pay off student loans
  • Pay off mortgage

I list 6 places your money can go, and I stick to the assertion that if you have the chance to get matched 401(k) deposits, I'd do that as the first priority.

I'll also maintain that an emergency fund should have a high priority. It's important to understand where that $2000 will come from if your car transmission dies. The word for this is liquidity. We can debate the proper level of funding for this account, but depending on your situation, anywhere from 3-9 months expenses can be an appropriate level.

Note, the high rate debt is a priority over this as that money is typically easy to get back. In other words, for those who have only 18% card debt, even $2000 sitting in checking is costing $360/yr in interest. Pay that off, and if the emergency fund isn't ready, charge the emergency expense, and keep working to pay it all off. In your case, the loans can't be accessed again. Pay them all off and when you need to address a urgent expense, you're only choice may be the 18% card.

Given where we are in the economic cycle, I'd reverse 4 and 5, and pay the loans prior to funding the 401(k) beyond the match. Especially for the 4% or higher loans.

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    Great advice, Joe. Feb 11, 2017 at 4:51
  • The only change to the list that I'd suggest is to add "baby e-fund" above "High interest debt". That way, if a emergency does arise, you can cover it.
    – RonJohn
    Dec 29, 2017 at 21:35
  • Does my 4th paragraph, starting with "I'll also maintain that an emergency fund...." not address that sufficiently? Dec 29, 2017 at 23:38

Point #1: First off, these loans are at about the lowest interest rates you're going to find in the market. Just keep that in mind.

Point #2: If things go south for some reason and you need $5000 and you do not have it, any loan you will be forced to take will cost more than the continued interest on these loans.

Suggested strategy: Save up a safety net of 2-6 months living expenses... then pay off the loans, highest interest to lowest. I agree living debt free is a nice feeling, but if there is ever a risk that you will need another loan - for a car, for a house, or for emergency, having the loans you have now at these interest rates is preferable to paying them off and having to get new ones.


Keep just enough in savings to handle emergencies without taking on more debt ($1,000 - $2,000 should be plenty unless you have special circumstances). Stay on a conservative budget and pay off the student loans as fast as you can. I prefer the snowball method (pay off the smallest balance regardless of interest rate). In your case the two highest rate loans have relatively small balances so there shouldn't be a dramatic different regardless of what method you use. In three months (at $2k/mo.) you'll have the two smallest ones knocked out and well on your way to the third, leaving about $21,000. At your current rate of $500-$600 / month it will take you three years to pay the rest off. I would encourage you to try and be more aggressive with your budget. If you can bump that to $1,000 you can pay them off in under 2 years.

I speak from experience when I say that there's no better feeling that getting rid of debt - especially student loans. The last thing you want is to wake up 10-25 years from now and still have a student loan payment.

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