Tips for budgeting your student loan payments

How to create your budget

When it comes to paying back student loans, you may feel overwhelmed. Having a plan to repay can help make your payments more manageable. Here are some tips on how to create a budget and make sure your loan payments fit your finances.

Know what you owe

The first step to creating a budget is to figure out what loans you have, how much your payments will be, and when you need to make payments.

A few months before your payments are due, you’ll hear from your servicer(s) with info on the amount and the due date. If you don’t know what loans you have, or even who your servicers are, here’s how to find out:

• Federal loans: Visit the National Student Loan Data System for your loans and servicers.
• Private loans: You can request a free credit report from annualcreditreport.com that’ll list the student loans reported to the consumer reporting agencies. (Most servicers report their loans to these consumer reporting agencies.)

Your servicers will send you your actual loan payment amounts about a month before it’s due. There are also online student loan calculators for you to estimate your payments using your loan total and interest rate.

The amount that you’ll be paying on all your loans will include both principal and interest. (This starts after a grace period, which is usually 6 months after you leave school.) Principal is the amount you borrowed, plus any unpaid interest. Interest is the amount you’re charged for borrowing the money.

Once you’ve estimated your payment, you can make a simple spreadsheet listing each loan, its interest rate, when payments will start, the amount of each payment, and the servicer.

Track your money

A budget tracks how much money you have coming in (income) and how much goes out (expenses) each month. Creating a budget can be as simple or complex as you feel comfortable with. There are lots of online resources that can help you—like this free downloadable worksheet. Here are the basics of starting a budget.

1. Start with your net income (the money you make after taxes) from your paycheck. If you don’t have regular paychecks or work freelance, you’ll need to subtract estimated taxes from the amount you’ve made. According to the IRS, the self-employment tax rate is 15.3.^{footnote 1}
2. Next, calculate your expenses: rent, food, utilities, streaming services, transportation, clothes, and entertainment. Make sure to include any monthly payments, like auto loans or phone bills. 
3. Once you’ve calculated your income and expenses, add your expected student loan payments to the mix. This will give you your monthly balance/loss.

Starter budget tips 

Not sure where to start? A common budget technique is the 50/30/20 rule. 

• 50% of your budget goes to necessities: rent, utilities, transportation, insurance, groceries, etc.
• 30% goes to wants: dining out, shopping, gym membership, entertainment, etc. 
• 20% goes towards savings and debt repayment: student loans, auto loans, credit cards, emergency savings, etc. 

This may not work if you’re in an entry-level job—student loans can take up a big chunk of your budget. But it’s still a helpful way to think about your spending habits. You might find a little extra cash from your wants to throw at your loans each month. 

Another way to budget is the “pay yourself first” method—you decide how much you want to save (especially for emergencies), then cover your bills, and whatever’s left is for fun stuff.

Some people prefer “cash stuffing,” which is an envelope system. You take physical cash and split it into envelopes for things like rent and groceries. Once an envelope is empty, you stop spending any more in that category until next month.

What if you can’t make your student loan payments?

Budgeting for your student loan payments may mean cutting back on some expenses, like entertainment or dining out. If you don’t make any payments, you could cause your account to go into default and damage your credit.

You can pay a portion of your bill, but interest will keep accruing (growing) and you’ll end up paying a lot more than if you paid in full each month.

Here are some things you can do:

For federal loans

• If you work (or have worked) in public service in the federal, state, tribal, or local government, or for a non-profit organization, see if you’re eligible for the Public Service Loan Forgiveness program.
• Refinancing may be an option, but understand that you might have to give up federal student loan benefits like income-driven repayment (IDR), forbearance and deferment, and Public Service Loan Forgiveness.
• If you’re in a temporary financial bind, deferment or forbearance might help you suspend payments for a short time.

For private loans

Call your servicer and let them know that you’re having trouble. Individual servicers may have programs or other options to let you make lower payments until your financial problems get better.

Manage your money with a budget

The important part of getting ready to make student loan payments is understanding your income and expenses. A simple budget can give you a sense of your spending habits and help you reach your financial goals.