Which Student Loan Should I Pay Off First? A Guide to Prioritizing Debt

The average undergraduate student leaves school with about $29,300 in educational debt, often spread across multiple federal and private loans, according to the College Board. Deciding which student loan to pay off first can make a big difference in how quickly you become debt-free, and how much interest you pay along the way.

While making the minimum payment on each loan keeps your accounts in good standing, a targeted repayment strategy can help you repay student loans faster and save money on interest. Here's what to know about which loans make the most sense to tackle first and the best strategies to pay them off.

Current student loan refinance rates

How to decide which student loan to pay off first

The best loan to pay off first depends on a few key factors:

• Federal vs. private loans: Federal student loans come with benefits like income-driven repayment and forgiveness options, while private loans don't.
• Interest rates: Loans with higher interest rates cost more over time, so paying them off first can save you money.
• Loan balances: If you have multiple loans, knowing their balances can help you prioritize repayment.
• Forgiveness eligibility: If you qualify for loan forgiveness, it may make sense to focus on other debt first.

Once you've assessed your loans, you can choose a repayment strategy that helps you pay down your debt efficiently.

Strategy 1: Focus on private student loans first

Best for: Borrowers with a mix of federal and private student loans.

If you have a mix of student loans, prioritizing private loans over federal ones can help you minimize interest costs while maintaining federal loan benefits.

“Loans with the highest interest rates (often private loans) should be prioritized since they accrue interest faster,” says Dr. Sonia Lewis, CEO of The Student Loan Doctor LLC, a financial coaching business that focuses on helping people pay off their student debt, and author of “Success Guide to Repaying Student Loans.”

Additionally, private student loans don't offer federal perks like income-driven repayment or forgiveness programs, which means you have fewer options if you hit financial hardship.

If you decide to focus on private loans first, follow these steps:

1. Continue making the minimum required payments on your federal student loans.
2. Put all of your extra cash toward your private student loans until they're paid off.
3. Move on to repaying your federal student loans.

Strategy 2: The debt avalanche approach

Best for: Borrowers who want to cut interest costs and get out of debt sooner.

The debt avalanche method focuses on paying off the loans with the highest interest rates first, helping you save the most money over time.

With this strategy, you continue making minimum payments on all your loans but put any extra money toward the loan with the highest interest rate. Once that loan is repaid in full, you move to the next highest-rate loan, and repeat the process until you're debt-free.

If you choose the debt avalanche method, follow these steps:

1. Pay extra toward the loan with the highest interest rate while making minimum payments on the others.
2. Once that loan is paid off, shift your focus to the loan with the next-highest rate.
3. Keep going until all your loans are repaid.

This approach takes discipline but can save you a significant amount in interest over time.

See Also: What Is the Average Student Loan Interest Rate?

Strategy 3: The debt snowball method

Best for: Borrowers who feel overwhelmed by their debt

The debt snowball method helps you build momentum by focusing on your smallest loan first. Instead of prioritizing interest rates, this approach has you tackle the loan with the lowest balance while making minimum payments on the rest. Once that loan is paid off, you roll the amount you were paying into the next-smallest loan, gradually increasing how much you put toward debt each month, like a snowball growing in size.

If you choose the debt snowball method, follow these steps:

1. Keep making minimum payments on all your loans while putting extra money toward the loan with the smallest balance.
2. Once that loan is paid off, apply its payment amount to the next-smallest loan.
3. Repeat until all your loans are gone.

This method doesn't save as much on interest as the debt avalanche, but it can make repayment feel more manageable by creating a series of small victories along the way.

Debt avalanche vs. debt snowball: Which is better?

Both methods can help you pay off student loans, but the right one for you depends on your goals.

The debt avalanche method saves you the most money over time by tackling high-interest loans first. However, because larger debts take longer to pay off, it may take a while before you see real progress.

The debt snowball method builds momentum by focusing on the smallest loan first. This can help you stay motivated, but it won't necessarily save you money on interest.

Which federal student loan should I pay off first?

If you have federal Direct Subsidized and Unsubsidized Loans, it's usually best to focus on paying off the unsubsidized loans first. This is because unsubsidized loans start accumulating interest while you're still in school. If you don't pay off this interest as it accrues, it gets added to your loan balance when repayment begins in a process called capitalization. As a result, you end up paying interest on a higher loan amount, increasing your overall cost.

See Also: What Increases Your Total Loan Balance? How Your Student Debt Can Grow

Should I pay off my student loans early?

Paying off student loans early can save you money on interest, but it's not always the right move. Here's what to consider before making extra payments.

1. Are you eligible for forgiveness?

If you're working toward loan forgiveness, making extra payments could be a waste.

“If you're eligible for Public Service Loan Forgiveness (PSLF) or income-driven repayment forgiveness, making minimum payments while working toward forgiveness may be the best strategy,” says Lewis.

On the other hand, “If a borrower is not pursuing loan forgiveness or discharge, paying off a student loan more quickly will save the borrower in total interest paid over time,” says Adam S. Minsky, an attorney focused on helping student loan borrowers and their families.

2. What are your loan interest rates?

The higher your interest rate, the more you'll pay over time. This can easily add up to thousands of dollars in interest costs depending on how much you owe. According to Lewis, it could make sense to pay off student loans early when rates are above 6% or 7%.

3. Can you afford it?

Making extra payments means less money for other financial priorities. Minsky points out that an early payoff “would require more aggressive monthly payments, so that would need to be balanced against the borrower's other financial priorities and constraints.”

Lewis recommends focusing on building an emergency fund and paying off high-interest debt first before aggressively tackling student loans.

Should I refinance instead?

Refinancing student loans can lower your interest rate and help you pay off loans faster, but it's not right for everyone. To qualify for the best rates, you'll need:

• Good credit (A FICO score of 670 or higher)
• Stable income
• A low debt-to-income ratio

Also, think twice before refinancing federal loans. Doing so means losing access to loan forgiveness programs, payment relief options, and income-driven repayment plans. Make sure the savings outweigh the loss of benefits before refinancing.