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Should I pay off my student loans or save for an emergency fund first?

Consider your job security and other financial responsibilities to help you decide.

If you’re worried about job security or have large financial responsibilities, saving for an emergency fund can be key to ensuring an unexpected expense doesn’t derail your finances. But there are situations when paying off your student loans first might make more sense over saving — especially if your loans have high interest rates or can be quickly paid off.

When should I save for an emergency fund first?

Most financial experts recommend saving anywhere from six to 12 month’s worth of your salary to cover you in case of an emergency. Because of this, it might make sense to save your extra money in an emergency fund instead of putting it toward extra payments on your student loans in the following situations:

  • Your job situation is up in the air. If you’re in a temporary job or an industry that’s unpredictable, having a healthy emergency fund can help you avoid financial issues down the road.
  • You only have federal student loans. Federal student loans tend to have more flexible repayment plans, lower interest rates and more options for deferment and forbearance. If you have a financial hardship, not having money to fall back on will be a bigger issue than owing money on your federal student loans.
  • You have major financial responsibilities. If you just bought a house, recently had a baby or are caring for a parent, having an emergency fund to fall back on will help ensure you can meet your financial responsibilities.
  • You’re pursuing student loan forgiveness. If you qualify for loan forgiveness, making only the minimum repayments necessary on your student loans can maximize how much you have forgiven.

When should I pay off my student loans first?

While having an emergency fund can be helpful should an unexpected expense crop up, you might want to focus on paying off your student loans first in the following situations:

  • You have private or high-interest student loans. All student loans are not created equal. If your student loans are through a private lender and have a high interest rate or strict repayment plan, you might want to focus on resolving that debt before saving for an emergency fund.
  • You have a cosigner on your student loans. Having a cosigner on your student loans means another person is equally responsible for your debt. Getting that loan paid off as quickly as possible is in everyone’s best interest, especially if your cosigner is looking to take on another form of credit, like a car loan or mortgage.
  • You owe a small amount. If you don’t have too much left on your student loans, paying this debt off first can help you save on interest in the long run. You can then begin putting the money you were spending on repayments into an emergency fund.

4 steps to figure out what to put your money toward first

Follow these steps to help you decide which option might be better for you:

  • Evaluate your current financial situation. Think objectively about your job, monthly bills and any additional debts you owe. Determine if any of these areas make you feel financially unstable. If they do, you might want to save for an emergency fund first.
  • Consider your responsibilities. If you have people relying on you to provide food and shelter, the risk of not having an emergency fund could be too great. Consider this even if you have valid reasons for wanting to resolve your student loan debt as soon as possible.
  • Review the terms of your student loans. Determine if you have federal or private student loans. Then take a look at your interest rate and repayment options. If the terms are favorable, look into building up your emergency fund first. If the loans have high interest rates or rigid repayment plans, you might want to focus on paying them off first.
  • Check your eligibility for loan forgiveness. If you qualify for loan forgiveness, you can reduce your student loan payments to the smallest amount allowed by the lender and put any extra funds toward savings. If you don’t qualify, it can make sense to focus on paying down the loans to save on interest in the long run.

I really need to pay off my student loans. How can I do that and still save?

Even if it makes financial sense to resolve your student loan debt first, there are ways you can make payments and still save.

  • Look into employer-sponsored savings or retirement plans. These are usually tax-deferred and often include an employer match. You can spend less, while saving more. Keep in mind though that plans like 401(k)s have penalties for withdrawing funds early.
  • Consider student loan refinancing. If you have private student loans, refinancing for a lower interest rate can help you lower your monthly repayments and allow room for saving.
  • Find a job that offers student loan repayment benefits. Some companies have started offering student loan repayment benefits to attract new employees — especially those in the tech and finance industries.

Compare student loan refinancing offers

Name Product APR Min. Credit Score Loan amount Loan Term
Purefy Student Loan Refinancing (Variable Rate)
1.88% to 5.54%
$5,000 - $300,000
5 to 20 years
Refinance all types of student loans — including federal and parent PLUS loans.
Credible Student Loan Refinancing
1.80% to 7.74%
Good to excellent credit
Starting at $5,000
5 to 20 years
Get prequalified offers from top student loan refinancing providers in one place.
SoFi Student Loan Refinancing Variable Rate (with Autopay)
2.25% to 6.59%
Starting at $5,000
5 to 20 years
A leader in student loan refinancing, SoFi can help you refinance your loans and pay them off sooner.
Splash Financial Student Loan Refinancing
1.89% to 6.66%
Starting at $7,500
5 to 25 years
Save on your student loans with this market-leading newcomer.
Education Loan Finance Student Loan Refinancing
2.39% to 6.01%
Starting at $15,000
5 to 20 years
Lower your student debt costs with manageable payments, affordable rates and flexible terms.
Earnest Student Loan Refinancing
1.88% to 5.64% APR with autopay
$5,000 - $500,000
5 to 20 years
Get a tailored interest rate and repayment plan with no hidden fees.
Supermoney student loan refinancing
Starting at 1.9%
No minimum credit score
$5,000 - $300,000
5 to 20 years
Compare options to combine both private and federal debts into one monthly payment.

Compare up to 4 providers

How to build an emergency fund

The hardest part of building an emergency fund can be getting started. Here are some tips to make the process easier:

  • Determine how much you want to save. Most experts recommend saving anywhere from six to 12 month’s worth of your salary in case of an emergency. Take a look at your budget and lifestyle to determine what works best for you.
  • Compare high-yield savings accounts. Emergency funds should be easily accessible, but also help your money grow. A savings account with a high APY and no monthly fees can help you save even more.
  • Cut down on unnecessary expenses. Build a solid budget and take note of every penny you spend for a month. Then review your spending and see if there are areas where you can cut costs and put that money toward savings.
  • Be prepared to adjust your contributions. Big life events can equate to major changes in your finances. Consider adjusting your monthly contribution if you get married, receive a promotion, buy a house or have an emergency that causes you to deplete some of your savings.

Bottom line

Building an emergency fund can help ensure your financial stability and plan for the unexpected. But there are times when your student loan repayments might take priority over saving — especially if you’re dealing with high-interest loans or inflexible repayment plans.

You can compare savings accounts for your emergency fund or learn more about student loan refinancing with our guides.

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