If you’re in the same boat as the average college student in the U.S., you probably owe over $38,000 in student loans from just a single year’s cost of attendance. Many students were counting on student loan forgiveness to reduce some of that burden, but the last election’s outcome emphasizes a need to focus on repayment strategies.

There is some good news, though: According to Bankrate’s Pay Raise Survey, over half of workers (53 percent) are confident they’ll receive a pay increase between October 2024 and October 2025. You might consider knocking down those balances with some or all of the extra income from a current or upcoming raise.

While it’s always a good idea to pay off debt sooner rather than later, the extra income may be better spent on other financial goals that have more impact on building a solid financial foundation.

Key statistics

• Nearly 1 in 4 (24 percent) of those with student loan debt, either from their own education or someone else’s, have trouble affording their monthly payments on their federal student loans, according to Bankrate’s Student Loans and the Presidential Election Survey.
• More than 3 in 5 workers (61 percent) got a pay increase between October 2023 and October 2024 — slightly less than the year before, according to Bankrate’s Pay Raise Survey.
• Half (50 percent) of American credit cardholders carry credit card debt balances, the most since March 2020, according to Bankrate’s Credit Card Debt Survey.
• The average credit card annual percentage yield (APY) is 20.35 percent as of Dec. 18, 2024, slightly lower than the record high of 20.79 percent set in August 2024, according to Bankrate.
• More than a quarter (27 percent) of U.S. adults have no emergency savings, the highest percentage since 2020, according to Bankrate’s Emergency Savings Report.

Three reasons to use your raise towards student loan debt

1. You don’t have any credit card debt

If your credit card balances are low and paid off, congratulations! Besides paying credit on time, having a low credit utilization ratio is the best way to achieve a high credit score. That high score could land you a much lower student loan refinance rate that could save you a bundle on long-term interest if you use extra raise income to pay your balances off.

However, you might be better off applying any extra income to pay down your credit card debt if you’re one of the 37 percent of American cardholders who have maxed out or come close to maxing out a credit card since the Federal Reserve began raising interest rates in March 2022, according to the Bankrate Credit Utilization survey. With average credit rates above 20 percent as of late 2024, you could save a big chunk of interest compared to paying down lower APR private student loan debts.

2. Your emergency savings is where it should be

Paying down your student loan balances makes sense if you have three to six months’ worth of expenses saved up to cover an unexpected emergency, like a job loss or accident. That extra cash cushion can prevent you from turning to credit cards or emergency loans if life throws you a curveball.

However, if you’re like the nearly 59 percent of U.S. adults in the recent Bankrate Emergency Savings Report who feel uncomfortable with your level of emergency savings, use funds from your raise to build up your savings first. Once you’re comfortable, then you may want to put the amount toward your student loan debt.

3. You’re taking advantage of your employer’s 401(k) match

Whether you’re just starting in the workforce or getting close to retirement, contributing enough to get the most out of your employer’s 401(k) match should be a top priority. Before paying any extra towards student loans, check your plan to make sure you’re getting the maximum match dollars offered by your plan.

This may keep you from joining the 57 percent of American workers who, according to Bankrate’s Retirement Savings survey, feel behind on their retirement savings. And even with an average expected return of 6 percent, you could end up with a nice nest egg after five years compared to paying down your student loan balances.

Three reasons not to use your raise to pay off student loan debt

1. You’re planning a career change

If a new career is on your radar, you’re better off stockpiling extra cash from a raise in your savings account than paying down your student debt. The cash could be used for additional training or certifications to maximize your earnings potential in your new position.

Despite the recent job market slowdown, Bankrate’s Job Seeker Survey found that nearly half of American workers (48 percent) plan to search for a new job between July 2024 and July 2025. Gen Z workers (ages 18-28) are the most likely to be on the job hunt, followed by millennial workers (ages 29-44), Gen X workers (ages 45-60) and baby boomer workers (ages 61-79).

2. You plan to pursue a graduate degree

A lower-than-expected raise may motivate you to pursue a graduate school degree to increase your potential earnings. Recent data from the U.S. Bureau of Labor Statistics shows you could take home more than $380 in extra income per week if you earn an advanced degree on top of your current bachelor’s degree.

Check with your student loan servicer about deferment options before you return to school. You may be able to pause payments while you finish up your graduate degree, giving you some breathing room in your budget. If not, crunch some numbers using a student loan refinance calculator to see if it makes sense to refinance before our graduate courses start.

3. The way you’re paid is going to change

Commission or self-employment income isn’t restricted by salary budget limitations characteristic of more corporate jobs. That could mean big paychecks in a good year, or nothing at all if there is a significant downturn.

If you plan to switch from a salary to commission work, you may want to consolidate your student loans before you make the change. And remember if you need to qualify for a loan, it may be tougher to get approved until you have one or two years of tax returns with variable income.

Bottom line

One other benefit to remember is the student loan tax deduction. By paying off your balance early, you could be giving up a $2,500 per year reduction in your taxable income and a tax credit if you’re still in school. It also doesn’t make sense to chip away at it if you’ve got any credit card debt, a skinny savings account or haven’t gotten all the free money possible from your 401(k).