Which Student Loans to Pay Off First

It’s common to graduate from college with several student loans. You might be wondering how to prioritize your student loans and which ones to pay off first. Ultimately, the answer will vary depending on your personal circumstances. 

As you’re thinking through this situation, it’s helpful to consider your loan types, how much you owe, and your interest rates. We’ll help you understand all of these factors and more so you can develop the right student loan repayment strategy for you. 

How to decide which student loan to pay off first

When deciding which student loans to pay off first, it’s a good idea to prioritize repaying the loans with the highest costs and fewest benefits first. This often means you may want to begin by paying off private student loans before federal student loans.

Federal student loans often cost less than private ones, but they also offer more benefits. For instance, federal student loans offer loan forgiveness, income-driven repayment plans, and temporary financial hardship relief.

To start building your loan payoff strategy, begin by ensuring you have all the relevant information about them on hand, including the following:

• Balance
• Interest rate
• Minimum monthly payment
• Repayment term
• Type of loan

If you have private loans, find out whether your interest rate is fixed or variable. If it’s variable, identify how often the rate may change and by how much. 

If you have federal loans, identify what loan subtype you have: 

• Direct Subsidized
• Direct Unsubsidized
• Direct Consolidation
• FFEL
• Direct PLUS 

If you have private loans, you can find this information on your most recent loan statement or the lender’s website. You can get that information from your official credit report if you’re unsure of your private lender. You can get details about your federal loans on the Federal StudentAid website.

Contact your lender or loan servicer if you have any questions about your loans or can’t find the information. They’ll be able to explain how your loans are structured and help you understand what’s required. 

As you develop a student loan repayment strategy, don’t forget to pay the minimum on every loan when due. You must make the minimum payment unless your loans are in deferment or forbearance, as failing to do so can result in late fees and damage your credit score. 

Record crucial information about each student loan

Once you’ve located information on all your student loans, write down important information about each one. This information will make it easier to prioritize which loans to repay first. 

Use the information you’ve gathered to develop answers to questions such as the following as you evaluate each of your loans:

1. Do you have private or federal loans? It’s generally a good idea to repay private student loans first, as federal student loans come with extra benefits. 
2. Are your federal student loans subsidized or unsubsidized? If you have subsidized loans, these won’t accrue interest while you’re in school or if the loans are deferred.
3. What are the interest rate details? Knowing the type of rate you have—fixed versus variable—and the specific rate on each loan can help you prioritize repayment. 
4. How much do you owe for each loan? Some people prefer to repay the loans with the lowest balance first. Knowing this can help prioritize loan repayment. 

Considering the answers to these questions, the additional information in the following sections may further help guide your decision-making process. 

Private loans or federal

A rule of thumb for paying off your loans early is to focus on your private loans first. Private loans have fewer repayment and forgiveness options than federal loans, so it’s better to pay them off first and then focus on your federal loans.

If you’re eligible for federal loan forgiveness programs, you may not need to pay off your federal loans ahead of schedule. Keep making minimum payments, and follow any rules necessary to qualify for loan forgiveness. 

Subsidized or Unsubsidized

Determine whether you have Subsidized or Unsubsidized loans if you have federal loans. Knowing the difference between the two can help you decide which to pay off first.

Subsidized federal student loans do not accrue interest while you’re in school or during periods of deferment. Interest will always accrue on Unsubsidized federal loans, Direct PLUS loans, or Direct Consolidation Loans. 

Interest rate and type

When comparing your student loans, note the type of interest and the interest rate itself. Private student loans may have fixed or variable interest rates. Variable rates may increase or decrease as overall market rates rise or fall.

It’s often best to pay off variable-rate loans first to avoid surprise hikes in your monthly payment. You can also pay off loans with the highest interest rate first. 

Total loan balance

Write down the entire loan balance, including the remaining principal and interest. Some borrowers may prefer to pay off smaller loan balances first, so it helps to know how much you have left on a particular loan. 

Do you want to use your own repayment method or a suggested one?

The next step is to pay off your debt. How you do this is up to you, but two options are the snowball and avalanche debt repayment methods. 

Both dictate that borrowers make the minimum payments on all but one loan. However, deciding which loan to prioritize depends on the approach.

Debt snowball method

The debt snowball method says you should pay down the loan with the smallest balance first, regardless of the interest rate.

For example, let’s say you have two loans:

	Balance	Interest rate
Loan 1	$30,000	10%
Loan 2	$10,000	5%

In this case, you would make the minimum payment on Loan 1 while throwing extra funds toward Loan 2.  

Research from the Harvard Business Review found the snowball method to be more effective than paying off debt equally. The main benefit of this approach is that paying off a single debt faster can provide extra motivation. These small wins can keep you motivated to continue.

When the snowball method makes sense: When you need more motivation to pay off your loans.

When the snowball method doesn’t make sense: You don’t need small wins to achieve your financial goals; instead, you want to prioritize repaying your higher-interest rate debt first.

Debt avalanche method

If you aim to save the most on total interest, the debt avalanche method may be the right strategy. This method involves paying extra on the loan with the highest interest rate, which will help you avoid accruing unnecessary interest.

For example, let’s say you have two loans:

	Balance & interest rate	Repayment term
Loan 1	$5,000 at 8%	10 years
Loan 2	$10,000 at 3%	10 years

Your decision to pay an extra $29 per month on Loan 1 could save about $1,000 in total interest. 

Paying off your highest-interest loan first could help you save more than focusing on the loan with the smallest balance. After you pay off the loan with the highest interest rate, take that monthly payment, and apply it to the loan with the next-highest interest rate.

When the avalanche method makes sense: If you have loans with high interest rates and others with low rates.

When it doesn’t make sense: You need more motivation to repay your loans quickly.

Can tools or calculators automate my decision-making?

Borrowers struggling to decide which loan to focus on can use student loan apps or calculators to help them figure out which loans to repay first. There are lots of helpful tools you could use to do this. 

One example with no login required is the Unbury.me loan calculator. To see your results with this calculator, type in the interest rate, minimum payment, remaining principal, and lender name. 

After you’ve done this, you add how much extra money you can afford to pay each month. You can choose from the avalanche or snowball method to find out which loan you should pay off first.

How do I know whether I chose the right student loan to pay off first?

When deciding which loan to pay off first, the best decision is the one that fits your personality and budget. There is no wrong choice. 

If you use the snowball method, you may be more motivated to continue the debt payoff journey. If you pick the avalanche method, you may save the most on interest. 

The only wrong choice you can make is to stop making the minimum payment on any loan. This will result in extra late fees and damage to your credit score.

Do I need to go through this process again after I pay off my first student loan?

Once you’ve paid off one student loan, you may want to reevaluate which loan to pay off next. 

Have your financial goals changed? For example, you might be ready to buy a house and need to save for a down payment. In that case, you can switch back to making minimum payments and put the extra funds toward that goal.

You may also decide to change repayment strategies. For example, the debt snowball method can help you get back on track if you’re feeling unmotivated. Or if you have a student loan with a variable interest rate that has increased, you may consider tackling that one next.

Should I combine my student loans so I only have one to pay back?

To simplify the repayment process, consolidating your loans into one can make it feel more manageable.

Consolidate federal student loans

Borrowers with multiple federal student loans can consolidate them into one Direct Consolidation Loan. This can make you eligible for certain federal repayment plans and loan forgiveness programs. 

The federal government does not have an official refinance program. 

Refinance with a private lender is the only way to get a lower interest rate on your loans. However, refinancing will convert federal loans into private loans, rendering you ineligible for the benefits associated with federal loans. Carefully weigh the pros and cons before refinancing. 

Consolidate private student loans

If you have private student loans, you can refinance them for a lower interest rate. Some borrowers refinance their loans several times to get a better deal.

If you have federal and private loans, you can refinance the private loans and not touch the federal loans.