How to Manage Student Loans and Savings

Of all the things to save for, a college education is one valued by most people. More than six in 10 (62%) of respondents to Forbright Bank’s 2025 customer survey said they believe college is worth saving for.

For millions of Americans, student loans are necessary to achieve that education. More than 42 million Americans have student loan debt totaling $1.77 trillion, according to the Education Data Initiative.

It’s been widely reported that repaying student loans can lead to borrowers delaying other financial milestones, such as saving for retirement, buying a home or car, getting married or starting a family. The temptation to throw every extra dollar at student loan payments can be strong, but completely neglecting savings in favor of aggressive debt repayment can leave you financially vulnerable and unprepared for life’s inevitable surprises.

Consider these tips for managing both student loans and savings.

Before diving into complex repayment strategies, work to establish a modest emergency fund of $1,000 to $1,500. This small cushion can prevent you from accumulating credit card debt when unexpected expenses arise, such as car repairs or medical bills. Even while carrying student loan debt, having this safety net is crucial for maintaining financial stability.

Once you’ve built this initial emergency fund to add some predictability to your financial life, you can simultaneously tackle debt repayment and additional savings goals without the constant fear of financial setbacks derailing your progress.

Not all debt is created equal, and your student loan repayment strategy should reflect this reality. Federal student loans typically carry interest rates between 4% and 7%, while private loan rates can be much higher. List all your loans with their respective interest rates, minimum payments, and balances.

For loans with interest rates higher than the amount you could earn in a high-yield savings account, prioritize aggressive repayment. However, for loans with lower interest rates, consider splitting your extra money between debt repayment and savings, as you might achieve better long-term returns with a high-yield savings account.

Many employers offer student loan repayment assistance as part of their benefits package. Some provide direct monthly payments toward your loans, while others offer matching contributions when you make payments above the minimum. Take advantage of any student loan assistance your employer might offer.

Additionally, maximize any employer matching for retirement savings, as this represents an immediate 100% return on your investment. If your employer offers both student loan assistance and retirement matching, prioritize the 401(k) match first, then apply for loan repayment benefits. This approach ensures you capture all the financial benefits available to you while building long-term wealth.

Set up automatic payments for both your student loans and savings contributions. Many loan servicers offer interest rate reductions (such as 0.25%) for autopay enrollment, which provides immediate savings. In the same way, automate transfers to a high-yield savings account on the same day you receive your paycheck.

This “pay yourself first” approach treats savings like a non-negotiable expense, helping you avoid lifestyle inflation by spending more as your income increases. Start with small amounts and increase your contributions when you receive raises or bonuses. Even $50 monthly will make a difference over time.

For federal loans, income-driven repayment plans can significantly reduce your monthly obligations, freeing up money for savings. If you qualify for an income-driven repayment plan, your monthly payment will be determined based on your discretionary income. A lower payment may give you breathing room and allow you to build an emergency fund and invest in retirement accounts during your highest-earning years.

By lowering your monthly payment, income-driven repayment plans can extend your repayment period and increase the total interest you pay. Calculate whether the reduced payments plus investment returns outweigh the additional interest costs. Often, the peace of mind and financial flexibility will justify the trade-off, especially early in your career when income is lower.

Create a budget that includes line items for both savings and debt repayment and consider using a budgeting tool to keep you on track. For example, an adaptation of the popular 50/30/20 budgeting rule might look like this:

A budget framework like this will ensure balanced progress toward multiple financial goals without neglecting any critical area. As your income grows or loans are paid off, gradually shift percentages toward savings and investments. The key is maintaining momentum in both areas rather than adopting an all-or-nothing approach.

Managing both debt and savings requires sustained motivation over several years. Use apps or spreadsheets to visualize progress toward both goals, celebrating milestones like paying off individual loans or reaching savings targets.

Remember that building wealth is a marathon, not a sprint. Consistent, balanced progress toward debt freedom and financial security creates lasting habits that will serve you well beyond your student loan years.

Disclaimer: This article is for general information and education only. It should not be considered financial or tax advice.