Dear Penny: How Do I Pay Back $80K in Student Loans on a $42K Salary?

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Dear Penny,

I just got my first “real” job after graduating from college in May. My salary is $42,000, and I’m 23 and single. I have $80,000 worth of student loans (about $50,000 federal and $30,000 private).

I know I need to pay off my student debt, but I also need to save an emergency fund, save for retirement, etc. I also have about $3,000 on a credit card. How do I prioritize? I’m feeling overwhelmed. 


Dear H.,

I suspect that you’re overwhelmed because you’re in a time of life when there are so many things you’re supposed to prioritize right now: Get out of debt. Save for retirement and emergencies. Negotiate a decent starting salary, even if your resume is scant.

So often, the advice boils down to: If you just make X move now, you’ll amass great fortune and success, and you’ll never have to worry about money again. 

Sometimes, it’s great advice, though often it comes from people who haven’t lived on an entry-level salary in decades and who have never tried to pay down a student loan balance that’s nearly double their starting salary.

Sometimes, it’s superbly unhelpful. People tell you how you should have never taken out the student loans in the first place, picked a cheaper school or chosen a different major — as if you had access to a time machine.

You can only stretch $42,000 so far, so yes, it’s going to be a challenge to save money while paying off $83,000 debt. But I don’t think your debt is insurmountable.

Consider that your friendly advice columnist here gets letters from people who are approaching retirement with similar amounts of student loan debt. You’re 23. You have time on your side. 

But you need to be strategic about how you pay off debt. First up, your school debt, specifically which student loans to pay off first.

I suggest getting your student loan minimum payments as low as possible so you can knock out the credit card debt first, since credit card interest is significantly higher. Plus, because the balance is fairly low, it’s a “win” you can achieve quickly.

To lower your student loan minimums, start by applying for an income-driven repayment plan at These plans will cap your monthly payments at 10% to 20% of your discretionary income — but they only apply to your federal loans. They stretch out your monthly payments over 20 or 25 years, instead of the standard 10, and whatever balance you owe at the end will be forgiven.

A single person in the continental U.S. with your salary and a $50,000 federal loan balance at 5% interest could save nearly $350 on their monthly payment.

Of course, there are drawbacks: Obviously, these plans prolong the time you pay on debt, and you often pay more in interest as a result. You’ll also owe income tax on whatever amount is forgiven.

The goal here isn’t loan forgiveness — it’s to lower your monthly payment for now. You can always make extra payments or make more than the minimum.

Once you’ve gotten rid of your credit card balance, keep making minimum payments on your federal loans and focus on paying off your $30,000 in private student loans — not just because the interest is higher, but because you have a lot more protections and flexibility with federal loans. Apply whatever you were paying toward your credit card to your private loans.

Once the private loans are gone, start putting those payments toward your $50,000 federal loans.

As for your other goals: Take advantage of any 401(k) match your new employer offers. Even if your company only matches 25% or 50%, that’s a 25% or 50% return on your investment. I’d also suggest setting up automatic transfers to build an emergency fund, even if you can only afford $50 or $100 a month. 

Once you’re rid of your credit card debt and private student loans, you might want to readjust your priorities and start saving a little more, even if you’re still paying off your federal loans.

In general, the best advice for any recent grad, regardless of whether they have student loans, is to keep living on a student’s budget for as long as possible. That means keeping your cost of living low by splitting rent with roommates or living with family, avoiding a car payment and limiting meals out. 

With the right strategy and budget, you will get rid of this debt — no time machine required.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your questions about student loans to [email protected].