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Even though common sense might suggest that repaying any loan should be straightforward—that all you have to do is send money until you don’t owe any more—there is actually a fair amount of strategy involved. When it comes to repaying federal student loans, there are many ways to think about taking them on.

Having a game plan for eradicating student loan debt is a good idea: In the United States alone, 45 million borrowers hold more than $1.6 trillion in student loan debt, and payments to tackle that mountain of debt have been slowing, on the whole. Those numbers and that trend underline the necessity that a borrower knows how to shoulder debt while reducing it.

So here’s a guide that offers tips for repaying federal student loans. Are you the calculating sort? Our student loan payoff calculator is a good tool for getting an idea of your loan payoff date. (The Education Department also has a calculator if you want to play around with your numbers.)

As outlined in the CARES Act, and extended by executive order, both the suspension of loan payments and the 0% interest rate on loans held by the Department of Education are set to expire after Aug. 31, 2022.

Repaying Federal Student Loans

1. Taking Advantage of the Grace Period

An important factor to determine your strategy to pay off a federal student loan is when you are expected to make your first loan payment. This deadline can dictate the rest of your actions. According to the Federal Student Aid office , for most student loans, there is a set period of time after a student graduates, leaves school, or drops below half-time enrollment before payments begin.

This grace period could be six to nine months, depending on the program a student received a loan through. As the date of the first payment draws closer, the loan servicer should let the borrower know when the first payment will be due—but it helps to think of how to take advantage of the grace period in advance.

While it might be tempting to view the grace period as a time when you can sink your extra money into other things you want or need, it’s probably smarter to save up for when those payments will start coming due.

If you have a subsidized federal student loan, your loan will not accrue interest while you’re in school or during the grace period, so it helps make paying it off in the longer run less burdensome.

If you have an unsubsidized federal student loan, interest has been accruing since the loan was disbursed, so you could consider taking the time when you do not have to make principal payments to pay down some of the interest that accrued.

For more information on ways to pay off student loans, this link includes tips for budgeting during a grace period and others you can mull over in that time. Interest has a way of sneaking up on borrowers because they might have in mind only the principal amount when thinking about monthly payments.

Also be aware that some federal student loan programs can have an up-front interest rate reduction, which requires making a number of monthly payments on time to prevent the rate from increasing.

So, just as studying is important to one’s academic life, studying up on student debt strategies is important to your overall life.

Borrowers can also learn to harness momentum to pay off student loans faster.

2. Selecting the Right Repayment Plan

Federal student loans come with many options for repayment. The options that might be open to you will depend on the type of loan you took out.

This Federal Student Aid office brochure drills down on the most common plans and loans they apply to, and offers bullet points of comparison.

It also links to information on consolidating federal student loans. Refinancing loans is something else to consider.

Generally speaking, the most popular repayment plan for federal student loans is the Standard Repayment Plan. Part of the reason it’s the most popular is—wait for it—is that it’s the default plan borrowers will be designated for unless they request otherwise.

The Standard Repayment Plan affords borrowers up to 10 years to repay, with an expectation of fixed monthly payments of at least $50 during that time.

There’s also the Graduated Repayment Plan, which starts with lower payments that increase every two years. Under the plan, a borrower makes payments for up to 10 years.

With the Extended Repayment Plan, a borrower can take up to 25 years to pay the loan. There are specific eligibility requirements. The plan requires lower monthly payments than the 10-year Standard plan, though you will wind up paying more in interest for your loan than you would have over 10 years.

Then there are income-driven repayment plans, which are geared toward monthly payments that are intended to be affordable based on discretionary income and family size. These are meant to further lighten the financial burden for individuals who have additional ongoing expenses or obstacles.

As such, they offer a greater degree of flexibility on their terms—like the Income-Contingent Repayment Plan. With that plan, any outstanding balance will be forgiven if the borrower hasn’t repaid the loan in full after 25 years. (Income tax may still be owed on the amount that was forgiven.) Again, more details on each of these payment plans—and others—can be found in this Federal Student Aid office publication .

Some of these plans are good options if you are seeking Public Service Loan Forgiveness—circumstances that apply if you are employed by a U.S. federal, state, local, or tribal government or nonprofit organization.

Many of the income-driven repayment plans may be good options if Public Service Loan Forgiveness is a light at the end of your federal student loan debt tunnel.

The Income-Based Repayment Plan is worth a mention, as monthly payments would be 10% to 15% of discretionary income, and payments are recalculated each year to factor in family size and discretionary income.

It’s normal to feel a little confused with so many numbers being thrown around. Our guide on fast ways to pay off debt makes a good addition to everything discussed so far.

3. Student Loan Consolidation

A Direct Consolidation Loan allows a borrower to consolidate multiple federal education loans into one loan at no cost. It’s just a way to minimize the headaches—and ulcers—that can stem from the obligation to make monthly payments on different loans.

It’s not usually a way to save money, as the new interest rate you get with a Direct Consolidation Loan is a weighted average of all your loans’ interest rates rounded up to the nearest eighth of a percentage point.

There is another asterisk in considering this option: Private student loans cannot be consolidated with federal student loans into a Direct Consolidation Loan. You can, however, pursue refinancing both types of loans with a private lender.

If you have solid credit and a stable income, among other personal financial attributes, it’s possible to qualify for a new loan at a lower interest rate.

But there’s an asterisk to this asterisk, which is that refinancing with a private lender can make you ineligible for the federal benefits and protections offered to qualified federal student loan borrowers, like Public Service Loan Forgiveness, income-driven repayment, deferment and forbearance.

4. Paying More Than the Minimum

A strategizer knows that there’s more to it than paying the lowest amount required every month on student loans.

A big reason to pay more than the monthly minimum is that student loan repayment is structured around amortization—a word you heard if you took an accounting or economics class that basically means a portion of fixed monthly payments goes to the costs associated with interest (what the lender gets paid for the loan) and reducing your loan balance (paying off the total amount owed).

Paying more than the minimum means you can accelerate reduction of the amount you owe rather than covering the interest—which is effectively the lender charging you for the privilege of having the loan in the first place.

That privilege isn’t exactly bragworthy, so it’s smart to make more than the minimum payment—however little more it might be.

One plan of attack for borrowers to consider is signing up for automatic payments through their federal loan servicer so the payments are taken directly from their bank account as they’re due.

The payment amount to be withdrawn can be customized, and there’s a discount for doing so: Those who have a Direct Loan will get an interest-rate reduction while participating in automatic debit.

Getting Student Loans Under Control

Nobody really enjoys thinking about student loans, but the upshot of that is the pain points associated with them are well known—and there are proven strategies to ease the pain and manage the process of repaying government student loans, whether going for a special payment program, consolidating, or refinancing.

All it takes is a little planning and a willingness to adapt those plans to the ways your life unfolds after you have that degree.

SoFi student loan refinancing offers flexible terms and low fixed or variable rates. There are no application or origination fees. And getting prequalified online is easy.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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A hospital bill in the thousands. A vet invoice for hundreds. A car repair for more than you make in a month. When faced with an emergency, it can compound the problem to try to figure out how to pay for the unexpected expenses, on top of an already stressful situation.

If you find yourself questioning, “Should I have an emergency fund?” the answer should be a resounding yes, absolutely! But where to begin? Forty percent of Americans say they are unable to afford even a $400 emergency expense.

Conventional wisdom claims you should have enough money saved in an emergency fund to cover at least three to six months of expenses, depending on your personal financial situation.

But with looming student debt, credit card payments, or other big financial burdens, it can be hard to imagine saving while keeping up with all of your bills and expenses. Emergency funds are great for major unexpected expenses, but preparing for the unexpected still takes time and planning.

Beefing up Your Budget

One of the first ways you can start saving up for an emergency fund is to evaluate your current spending habits and create a budget, if you don’t already have one. Take a look at where there is fat to trim, meaning extra expenses you can minimize or eliminate.

Start with a simple spreadsheet, which should help you break down your spending to see your total income, plus what you spend on necessities like rent, loan payments and groceries, discretionary spending like shopping or entertainment, and long-term goals, including emergency fund savings or retirement.

For a two-income household, you could aim to have three months of expenses in your basic emergency fund, with six months for a one-income household.

In a recent survey, 67% of millennials report having a savings goal and sticking with it every month, or most months. Your overall savings goal might actually include more than just saving for an emergency fund.

One common tactic for an easy budget to stick to is to put 20% of your take-home income toward financial goals, such as savings, and then make part of that just for your emergency fund.

You might want to look at your current bills and deadlines and see what you can adjust to make the most sense with your paydays. If you get paid every two weeks, but all of your bills are due at the end of the month, maybe you find you are dipping into those savings to pay everything on time.

You could try spreading out your bills throughout the month or grouped closer to your paychecks, so you can better budget your money throughout the year. Everybody’s financial situation is different, so figure out what works for you—and stick with it.

Having an emergency fund means you’ll be better prepared to cover any urgent, unplanned financial crises, like a high medical bill or costly car repair, without ruining your normal budgeted living expenses. With money set aside, you’ll be able to stress less and avoid more costly solutions like credit cards or personal loans to fund any emergencies.

However, one possible disadvantage to trying to build up your emergency fund is that you might feel like that money should be going toward paying off debt, like student loans or credit cards, before storing away funds in savings. But it’s important to know good debt from bad in this case.

A mortgage or student loan is generally considered good debt, while a high-interest credit card can be worse for your overall credit score and financial health. If you are weighing paying off debt versus building up your emergency fund, you might consider this order to figure out your top priorities:

•   Make sure you have enough money in the bank to pay any recurring bills.
•   Build a safety net equal to one month of your basic expenses
•   Match any contributions your employer makes for retirement contributions.
•   Pay off bad debt, like high-interest credit cards.
•   Build up your emergency fund.

Once you have three to six months’ worth of expenses saved up for your emergency fund, you can refocus your budget on other long-term goals.

Putting Savings on Auto Drive

If you already use direct deposit, you’ve already got a possible solution to help you fund an emergency reserve. You can set up a recurring transfer with your bank, or split your direct deposit into a checking and a savings account, in order to make savings automatic.

If you don’t notice the money sitting in your account in the first place, it might be less tempting to spend it or move it back out of savings.

So how much can you afford to automatically transfer? The Consumer Federation of America says that an emergency savings fund should consist of at least $500 . They recommend using a savings account that you do not have easy access to, perhaps at a different bank than your current home bank.

You can kick-start your emergency fund by using a cash windfall like a tax refund, work bonus, or birthday check.

You could aim first to get to $500, then $1,000, then one month of essential living expenses, and work your way up from there.

You probably aren’t going to generate three or six months worth of extra money all at once.

Automating your savings might help, whether you choose to have a certain amount from your paycheck transferred into a separate savings account, or set up recurring transfers from checking to savings with your bank.

Then, when you do reach a comfortable number in your emergency fund, you can redirect those automated savings toward other financial goals like paying off debt or funding retirement.

Saving Smarter, Not Harder

So, if you’re determined to start saving more for an emergency fund, you might want to explore exactly what kind of savings account you want to keep your money in.

Certain accounts can earn you significantly more money based on the amount of interest. This could help your emergency fund grow even faster while rewarding you for saving money rather than spending it.

In fact, a SoFi Checking and Savings® account has no account fees. Plus, as a SoFi member, you’ll also receive other benefits to help you figure out your finances, like career coaching, mobile transfers, financial advisors, and community events.

We work hard to charge zero account fees. With that in mind, our fee structure is subject to change at any time.

Before you start saving up for an emergency fund, consider what kind of account you want to keep that money in. It can be helpful to have easy access to cash, in case you are ever faced with a financial emergency.

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