Which Student Loans Should You Pay Off First?

Strategically prioritizing which student loans to pay off first can help you save money, reduce interest costs, and protect valuable benefits like federal loan forgiveness. We recommend starting with loans that have the highest interest rates to minimize overall costs. Next, focus on private loans, which lack the protections of federal loans.

From there, consider small balances for quick wins, cosigned loans to protect others’ credit, and finally, federal loans with their built-in benefits. Below, we’ll outline the best repayment order and explore options like refinancing or consolidating to simplify repayment and achieve your financial goals.

Which student loans should you pay off first?

Paying off student loans in a strategic order can help you save on interest while keeping valuable protections. Financial professionals, like Erin Kinkade, CFP®, often recommend focusing on high-interest loans first, as they increase your costs the fastest.

Private loans usually come next, as they lack the benefits and flexibility of federal loans. Particularly if a high-interest loan is private, it should take top priority over federal loans to maximize savings while preserving federal loan protections.

Many factors apply and, of course, it depends on your financial condition, but in general, I recommend tackling student loans in the following order:

1. High-interest-rate loans first
2. Private student loans because they typically do not have the benefits that federal loans have
3. Federal loans

I would also recommend considering if consolidation makes sense during the repayment timeline.

Erin Kinkade, CFP®

In alignment with expert advice, we recommend the priority list below to help you create a repayment plan tailored to your situation:

Priority	Loan type	Reason
1	Highest interest rate loans	High interest rates increase costs quickly
2	Private student loans	Lack the same benefits and protections as federal loans
3	Smallest balance loans	Repaying small balances can offer you a sense of progress
4	Cosigned loans	Clears the cosigner’s liability, protecting their credit
5	Federal student loans	Retains helpful loan protections and benefits

With your loan details organized, use this priority list to guide your plan. Continue reading for detailed strategies for each loan type and actions to take as you work to implement your repayment plan.

1. Highest interest rate loans

Focusing on loans with the highest interest rate can save you money in the long run by reducing the total amount of interest paid. This approach aligns with the debt avalanche method, which prioritizes paying off loans with the highest interest rates first to reduce the amount of interest that accrues over time.

Why to prioritize

The debt avalanche method works by targeting the loans that cost you the most each month in interest. For example, if you have a loan with an 8% interest rate, it accrues more interest than a loan with a 3% rate, even if the balances are the same.

By putting extra payments toward the highest-interest-rate loan, you reduce the amount of interest that builds up, allowing more of your payment to go toward reducing the principal balance. Once the highest-interest loan is fully paid off, you move to the loan with the next highest rate, continuing this process until all loans are repaid.

Example: How the debt avalanche method saves you money

Suppose you have three loans:

Loan	Balance	Rate	Min.	Extra applied
A	$10,000	8%	$100	$300
B	$5,000	5%	$50	$0
C	$7,000	3%	$75	$0

If you pay only the minimums, the loans accrue interest every month, increasing the total cost over time. Using the debt avalanche method, you apply your extra $300 per month to Loan A, which has the highest interest rate. Once Loan A is paid off, you roll the extra $300 into Loan B’s payments, and so on. Here’s how this method reduces costs:

Loan	Interest paying mins. only	Interest using avalanche	Savings
A	$2,200	$1,000	$1,200
B	$800	$500	$300
C	$500	$400	$100
Total	$3,500	$1,900	$1,600

By focusing on the loan with the highest interest rate first, you save $1,600 in interest compared to paying only the minimum on all loans.

Action to take

Identify the loan with the highest interest rate and direct any extra payments toward it while maintaining minimum payments on others. Once the highest-interest loan is repaid, move on to the next highest-interest loan to continue maximizing your savings.

2. Private student loans

Private student loans often lack the protections and benefits of federal loans, making them a higher priority for repayment. Federal loans offer options like income-driven repayment options, deferment, and potential forgiveness programs, while private loans typically come with stricter terms and no forgiveness opportunities.

Why prioritize private student loans?

Private loans are less forgiving and can become a financial burden if money gets tight. Unlike federal loans, private lenders rarely offer repayment flexibility like adjusting payments based on your income or pausing them during financial hardship. They also don’t qualify for forgiveness programs, so you’re responsible for paying them off entirely.

Private loans often have higher interest rates than federal loans, especially if your credit wasn’t stellar when you took them out. Paying these off first can help reduce the amount you spend on interest overall.

Additionally, tackling private loans early frees up more of your financial resources for other priorities, such as building an emergency fund or accelerating federal loan repayment later on.

In short, focusing on private loans first reduces costs and financial risk while preserving the flexibility and benefits of your federal loans.

Action to take

1. Identify your loans: Log into studentaid.gov to find all federal loans listed under your account. If a loan isn’t listed, it’s likely private. You can also check your credit report—federal loans will show as issued by the Department of Education, while private loans will list a bank or lender like Sallie Mae or SoFi.
2. Start with high-interest private loans: If you have multiple private loans, prioritize paying off the one with the highest interest rate to save the most money.
3. Pay extra whenever possible: Applying even a small amount above your monthly payment can reduce the loan balance faster and cut down on interest costs.
4. Consider refinancing: If your private loans have high interest rates, refinancing into a lower-rate loan may help you save. Just make sure you’re financially stable and meet the credit requirements before refinancing.

3. Loans with the smallest balance

Paying off loans with the smallest balance first can make your debt repayment plan feel more manageable and rewarding. This approach, often called the debt snowball method, focuses on quick wins by reducing the number of loans you’re juggling. By eliminating smaller debts early, you create momentum that can keep you motivated to tackle larger balances.

Why to prioritize

The debt snowball method prioritizes psychological wins over immediate financial savings. By paying off smaller balances first, you see progress faster, which can be highly motivating. Clearing smaller debts also simplifies your finances, reducing the number of payments you have to track each month. While this method may not minimize interest costs as effectively as the debt avalanche method, it can help you stay committed to your repayment plan.

Example: How the debt snowball method works

Let’s say you have the following loans:

Loan	Balance	Interest rate	Monthly payment
A	$2,000	5%	$50
B	$7,000	6%	$100
C	$10,000	8%	$200

Using the debt snowball method, you prioritize Loan A because it has the smallest balance. Here’s how your repayment strategy would look if you had an extra $300 per month to put toward debt:

1. Pay the $300 extra toward Loan A, along with the $50 minimum payment, clearing it in just 6 months.
2. Once Loan A is paid off, roll that $350 total payment (the $300 extra plus the $50 minimum) into Loan B, accelerating its repayment.
3. After Loan B is cleared, roll the total $450 payment into Loan C until it’s paid off.

By eliminating loans in this order, you reduce the number of debts quickly, which simplifies your finances and keeps you motivated to stick to your repayment plan.

Action to take

1. List your loans by balance: Organize your loans from smallest to largest balance, regardless of interest rate.
2. Start with the smallest balance: Apply any extra money to the loan with the smallest balance while continuing to make minimum payments on the others.
3. Roll payments forward: Once a loan is paid off, redirect the amount you were paying toward it to the next loan on your list.

4. Cosigned loans

If a family member or friend cosigned your loan, prioritizing repayment can help release them from financial responsibility sooner. Since cosigned loans appear on both your credit report and the cosigner’s, any missed or late payments can negatively affect their credit.

Paying off these loans early protects your cosigner’s financial stability and may improve their credit score by reducing their overall debt liability.

Why to prioritize

Cosigned loans create a financial tie between you and your cosigner, which can lead to complications if you struggle to make payments. Clearing these debts:

• Protects your cosigner’s credit: Late payments or defaults can hurt their credit score, making it harder for them to qualify for loans or secure favorable interest rates.
• Reduces financial risk: Paying off the loan eliminates their liability, ensuring they’re no longer responsible for repayment.
• Prevents relationship strain: Financial obligations can complicate relationships. Prioritizing repayment shows responsibility and helps maintain trust.
• Improves your financial independence: Once cosigned loans are paid off, you’re fully responsible for your own debts.

Actions to take

1. Identify all cosigned loans: Review your loan documents or contact your servicers to confirm which loans have cosigners. These loans are typically private, but check federal loans as well if a parent or family member co-borrowed.
2. Explore cosigner release options: Some private lenders offer cosigner release programs, which allow you to remove the cosigner from the loan after meeting certain criteria, such as making a set number of on-time payments and demonstrating creditworthiness. For detailed guidance, visit our cosigner release guide.
3. Prioritize extra payments on cosigned loans: Apply any additional payments to cosigned loans to reduce the balance more quickly. Focus on loans with the highest interest rates first to minimize costs while protecting your cosigner’s credit.
4. Communicate with your cosigner: Let your cosigner know about your repayment plan. Keeping them informed can ease concerns and avoid surprises during the repayment process.
5. Refinance the loan into your name only: If you qualify, consider refinancing the cosigned loan into a new loan solely in your name. This removes the cosigner entirely while potentially lowering your interest rate or monthly payment.

Example: How prioritizing cosigned loans benefits you and your cosigner

Let’s say you have a $10,000 private loan cosigned by a parent at 9% interest. By making an extra $200 monthly payment in addition to the $150 minimum payment, you could pay off the loan in just under 3 years instead of 7. This reduces the interest paid from $3,600 to $1,200, saves you $2,400, and releases your cosigner from the loan 4 years earlier.

5. Federal student loans

Federal student loans offer benefits like income-driven repayment plans, deferment, and forgiveness programs, making them a lower priority for repayment than private loans. However, unsubsidized and PLUS loans accrue interest immediately, and PLUS loans often carry higher interest rates, so those should be the first federal loans you focus on.

Why prioritize federal student loans?

Not all federal loans are the same. While subsidized loans don’t accrue interest until after the grace period, unsubsidized and PLUS loans build interest right away. Addressing these first can save money, while subsidized loans can wait since they’re less costly over time.

Here is our recommended order of operations for federal student loans:

1. While in school: Pay extra on unsubsidized loans and PLUS loans to reduce interest capitalization. Subsidized loans can wait, as they don’t accrue interest yet.
2. After graduation: Focus on PLUS loans first due to their higher interest rates. Next, target unsubsidized loans with higher interest rates. Leave subsidized loans for last, as they have the lowest financial impact.
3. Use income-driven repayment or forgiveness when eligible: If you qualify for programs like Public Service Loan Forgiveness (PSLF), follow those requirements instead of paying loans off early.

Action to take

1. Organize your loans: Use studentaid.gov to review balances, rates, and terms.
2. Pay accruing loans first: While in school, make payments on unsubsidized and PLUS loans to limit interest growth.
3. Post-graduation strategy: Target PLUS loans first, followed by unsubsidized loans, then subsidized loans.
4. Focus on forgiveness if eligible: Let programs like PSLF guide your repayment plan if applicable.

Strategies to manage and simplify repayment

While a prioritized approach to paying off loans can be effective, additional strategies may simplify repayment or lower your costs. These options include refinancing private student loans or consolidating federal ones, each offering unique benefits depending on your goals.

Refinancing can be beneficial for private loans if you want a lower interest rate or to combine multiple loans into one. Federal loan consolidation lets you combine federal loans without losing benefits and may lower payments through an extended-term or income-driven repayment plan. 

If you’re comfortable with your current loan terms and repayment strategy, simply paying off the loans in the order outlined above may be your best approach—especially if your goal is to minimize interest costs and pay down debt as quickly as possible. 

Alternatively, if consolidating or refinancing aligns with your goals, you can combine your loans into a single, manageable payment and then apply the strategy to target high-interest portions or smaller balances within the new structure. 

Refinance

Refinancing your student loans can be a way to reduce your payments, lower your interest costs, simplify the repayment process, or help you repay your loans more quickly. 

Who should consider it?

Refinancing is best if you have private student loans and want to get better rates and terms or streamline the repayment of multiple loans. It’s a good idea to avoid refinancing federal loans into a private loan, as this will cause you to lose federal loan protections and benefits. 

Read More

Pros and cons of student loan refinancing

What to do next

If you want to refinance your loans, the first step is to shop around for the best rates and terms. Many lenders allow you to prequalify without a hard credit check. Since there’s no impact on your credit, you can compare rates with multiple lenders before formally applying. 

While shopping around, you may find reviewing our list of some of the highest-rated private student loan refinance lenders helpful. 

Federal Direct Consolidation Loan

Consolidation combines federal loans into one, keeping the rate as a weighted average of all loans, but may lower monthly payments by extending the term or switching to an income-driven plan. Additionally, consolidation can open access to certain loan forgiveness options.

Who should consider it?

If you have multiple federal student loans, consider consolidating them. This option only applies to federal student loans; it’s not something you’ll need to consider if you have private student loans. 

Read More

Pros and cons of consolidating student loans

What to do next

When you’re ready to consolidate your federal loans, you can apply online using the Federal Student Aid Direct Consolidation Loan Application.

I recommend refinancing if you have a high credit score, steady source of income, low debt-to-income ratio, and you can obtain a better interest rate and overall better terms. I recommend consolidating if you primarily have federal loans, want to maintain the federal loan benefits, and want to simplify your payment process.

Erin Kinkade, CFP®

FAQ

Which federal student loans should I pay off first between subsidized and unsubsidized?

If you have both Direct Subsidized and Direct Unsubsidized federal loans, it’s generally best to focus on paying off unsubsidized loans first because they start accruing interest as soon as they’re disbursed, increasing your balance over time. 

Subsidized loans don’t accrue interest while you’re in school or during deferment, making them a lower-cost option in the short term. By prioritizing unsubsidized loans, you can avoid additional interest charges and keep your overall debt lower.

What should I do if I want to lower my total monthly student loan payment?

To reduce your monthly payment, consider extending your loan term through federal Direct Loan Consolidation or switching to an income-driven repayment plan, which sets payments based on income.

Both options lower payments but may increase your total interest. If you have good credit and a stable income, refinancing with a private lender can also reduce your payments by securing a lower interest rate, though you’ll lose federal protections.

What should I do if I want to reduce the total interest I pay?

Reducing interest costs is often achieved by focusing extra payments on your highest-interest loans first or by making small payments on unsubsidized loans while in school to avoid capitalized interest.

If you qualify for a lower interest rate, refinancing can be effective, especially for private loans, helping you save on interest over time.