Deciding which student loans to pay off first depends on two main factors:
- The types of loans you have
- How much money you can afford to pay toward your loans
You'll need to consider your individual financial situation, too — for example, in some cases, it could be a better idea to pay off loans with fewer benefits (like private student loans) first rather than simply focusing on the loan with the highest interest rate.
Also be sure to think about what payment method best motivates you so you’ll stick to your payoff plan.
Option 1: Focus on private student loans first
Private student loans tend to have higher interest rates compared to federal student loans. If this is the case with your private loans, you might want to focus on paying those off first before turning to federal student loans. This way, you can save money on interest charges.
If you decide to focus on private loans first, follow these steps:
- Continue making minimum payments on your federal student loans.
- Put all of your extra cash toward your private student loans until they’re paid off.
- Move on to repaying your federal student loans.
Tip
Most lenders don’t charge prepayment penalties, which means you can pay off your private loans early without any additional fees.
If you have multiple private student loans, you could also consider combining them through student loan refinancing to make your repayment more manageable.
Depending on your credit, you might get a lower interest rate, which could save you money on interest and potentially help you pay off your loans early.
Keep in mind
You can also refinance federal student loans along with your private loans — however, doing so will cost you your federal protections, such as access to income-driven repayment plans and student loan forgiveness programs.
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Learn More: When to Refinance Student Loans
Option 2: Put extra money toward the loan with the highest interest rate
Focusing on repaying your loan with the highest interest rate first can help you save the most money on interest charges. This is commonly known as the debt avalanche method.
If you decide to use the debt avalanche method, follow these steps:
- Pay extra on the loan with the highest interest rate while continuing to make minimum payments on your other loans.
- When the first loan is paid off, move on to the loan with the next-highest interest rate.
- Repeat until all of your loans are repaid.
Tip
While the debt avalanche method can help you save money on interest, it can also take a long-time to see your results. If you’re more motivated by small wins, you might consider using the debt snowball method instead.
Option 3: Pay off the loan with the lowest balance first
Another alternative to consider is to concentrate on paying off your lowest student loan balance first — also known as the debt snowball method. While you won’t necessarily save much in interest this way, you’ll be able to see more immediate success, which can help keep you motivated.
If you decide to use the debt snowball method, follow these steps:
- Continue making minimum payments on all your loans while putting extra cash toward the loan with the lowest balance.
- Once this loan is paid off, move on to the next-smallest loan.
- Repeat until all of your loans are repaid.
Tip
While the debt snowball method can be a good way to enjoy small wins on your payoff journey, it might not save you any money along the way.
If you’d prefer to see more interest savings and can wait to see the fruits of your labor, then the debt avalanche method might be a better fit for you.
Learn More: How Long Does It Take to Pay Off Student Loans?
What is the most effective way to pay off student loans?
Ultimately, the best way to pay off student loans is the strategy that you can commit to — no matter which one it is.
For example, some people work better with small goals that they can achieve quickly, while others are motivated by seeing interest savings over time. Whichever method you choose, just be sure you can stick to it.
As you consider these payoff options, also make sure that the method you choose fits your:
- Income
- Debt
- Financial mindset
- Money goals
If you’ve laid out your loans and budget and realized you don’t have any extra money to put toward your student loans, that’s OK.
Keep making on-time monthly payments for now to continue building a positive payment history, and consider exploring other options down the road if you find yourself with cash to spare.
Check Out: Can You Refinance a Student Loan to a 30-Year Term?
Which student loan should I pay off first: Subsidized or unsubsidized?
The government pays the interest on Direct Subsidized Loans while you’re in school, which can help reduce your overall repayment costs. But with Direct Unsubsidized Loans, you’re responsible for all the interest that accrues — which means you might end up with a higher balance.
If this is the case, it could be a good idea to pay down your unsubsidized loans before tackling your subsidized loans.
Learn More: How to Refinance Student Loans With Bad Credit
Things to consider when paying off student loans
As you make your student loan payoff plan, here are a few other important points to think about:
Refinancing your student loans
Most borrowers leave school with multiple student loans to handle, which can make it difficult to manage repayment. Through refinancing, you can consolidate your student loans so you have just one loan and payment to deal with.
Additionally, you might qualify for a lower interest rate through refinancing. This could save you money on interest and even help you pay off your loans more quickly.
You could also opt to extend your repayment term to lower your monthly student loan payment — though this means you’ll pay more in interest over time.
Other forms of debt
In some cases, it could be a good idea to focus on paying off other forms of high-interest debt before turning to student loans. For example, credit cards often come with higher rates than student loans, so it might be better to pay down credit card balances first.
However, keep in mind that everyone's financial situation is different — so be sure to carefully consider each loan's terms before deciding where to start.
Check Out: Can’t Pay Your Student Loans? What You Need to Know
Overextending yourself financially
While paying off debt can be an excellent goal, it's important to avoid paying too much toward your debt and accidentally overextending yourself. Be sure to review your budget to determine how much you can realistically afford to pay toward your debt each month.
Additionally, be sure to set aside some money in your budget to put toward savings. By building an emergency savings fund, you can avoid having to take out additional debt in the future if unexpected expenses come up.
Tip
It's a good idea to save enough money in an emergency fund to cover three to six months' worth of expenses.
Also keep in mind that it's usually not a good idea to use your emergency savings to pay off student loans or other debt. If you do so, you might not have enough money to cover other unexpected expenses — which might lead you to go into debt again.
