Which student loan should you pay off first?

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For many borrowers, student loan repayment is about picking away at a single loan until the balance reaches zero. But for those with multiple different loans, things get a little trickier. The best student loan to pay off first could be the one with the highest interest rate, or it could be the one with the fewest benefits and borrower protections; the choice comes down to your financial situation and priorities.

How to decide which student loan to pay off first

If you have multiple loans, especially a mix of federal and private loans, you’ll need to create a repayment strategy. Here’s how to decide which student loan to pay off first.

What types of loans do you have?

Before you decide which student loan to prioritize, figure out what kind of student loans you have. There are two main types: federal and private. Federal loans come from the federal government and may have been offered when you filled out the Free Application for Federal Student Aid (FAFSA). Private loans are what you borrow from banks, like Citizens Bank or Discover, or online lenders, like CommonBond or College Ave.

Federal student loans include more benefits than private student loans, such as year-long deferment periods, income-driven repayment options and loan forgiveness programs. Because of this, it may be smart to pay off your private student loans first.

If you have federal student loans, they may be either subsidized or unsubsidized loans. In this case, it’s typically best to focus on your unsubsidized loans first, since they accrue interest during school and during your grace period.

Not sure what kind of loans you have? Pull up your account and see what the names of the loans are. If you see words like “federal,” “subsidized” or “unsubsidized,” then you definitely have federal loans. You can also call your loan servicer’s customer service department to verify. Some loan companies service both federal and private loans, so don’t assume which loan type you have just based on the servicer.

What are your interest rates?

If you want to focus on the cheapest way to pay back your debt, examine your interest rates to use the debt avalanche method. The debt avalanche method dictates that you should prioritize paying off debt with the highest interest rate first. For example, if you have one loan with 10 percent interest and one loan with 7 percent interest, you would pay extra on the loan with 10 percent interest while making minimum payments on the one with 7 percent interest.

If you have several different loans with varying interest rates, the debt avalanche method is usually the fastest way to pay them off, and you’ll pay as little interest as possible. You can also use this method in combination with refinancing — potentially bumping down the interest rates on your private loans by consolidating them with a private lender.

How much debt do you have?

Another way of approaching your repayment strategy is evaluating how much you owe on each of your loans and using the debt snowball method to prioritize payoff. The debt snowball method means that you pay down the debt with the lowest balance first while making minimum payments on the rest. Once that debt is paid off, you move on to the next-smallest balance. This creates a snowball effect, hence the name.

While the debt avalanche method typically helps you repay your loans faster, the debt snowball method works better for some individuals because of its motivational structure — you should knock out the first and smallest debt relatively quickly, which can boost you forward to each successive loan.

Because the snowball method only focuses on the total balance, you may end up paying more in total interest than if you used the avalanche method. If you don’t want to pay more in interest than you have to, only use the snowball method when your interest rates are within a percentage point of each other.

Other considerations when paying off student loans

Wanting to pay off student loans quickly is an admirable goal, but it shouldn’t interfere with your other financial goals.

In general, don’t use money from your emergency fund to pay down your student loans faster. Your emergency fund should be reserved for surprise expenses, like flying to a funeral, taking your pet to the emergency vet or visiting urgent care. It’s better to stay in debt for a little longer than to raid your emergency fund for a nonemergency expense. If you don’t have an emergency fund, create one before allocating extra funds to your student loans.

You should also keep in mind any other regular expenses or debt before making extra payments on your student loans. Student loan interest rates can be relatively low compared to interest rates on other debt — if you have a student loan with a 5 percent interest rate and a credit card with a 16 percent interest rate, you’re better off paying your credit card bill in full every month.

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Written by
Zina Kumok
Contributing writer
Zina Kumok has been a full-time personal finance writer since 2015. She’s a three-time nominee for Best Personal Finance Contributor/Freelancer at the Plutus Awards and a two-time speaker at FinCon, the premier financial media conference.
Edited by
Student loans editor