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Which student loan should you pay off first?

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For many borrowers, paying off student loans is as simple as making the minimum payment on a single loan for the entire stretch of its original payment plan. But for those with multiple student 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 SoFi or College Ave.

Federal student loans include more benefits than private student loans, such as deferment and forbearance, 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,” “unsubsidized” or “Direct,” 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 focuses only 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, use the snowball method only when your interest rates are within a percentage point of each other.

Should you pay off a credit card or student loan first?

Student loan interest rates are usually relatively low compared to interest rates on other types of debt, which means that they may fall lower on your priority list when it comes to debt repayment.

For example, federal student loans for the 2022-23 academic year come with fixed interest rates that range between 4.99 percent and 7.54 percent, and many students who borrowed in previous years pay much lower rates than that. Meanwhile, the average credit card interest rate is currently over 17 percent.

If you have a student loan with a 5 percent interest rate and a credit card with a 16 percent interest rate, you should prioritize paying off your credit card before you make any extra payments toward your student loans. Continue making the minimum payments on your student loans — failing to do so will put you at risk of late fees and student loan default — but put any extra funds toward your credit cards.

Should you pay off your student loan early?

You can choose to pay off your student loans early at any time — it is illegal for companies to charge a fee for prepayment. If you have private student loans, there is little downside to paying off your student loan early, if you can. Doing so will save you money in interest and free up your budget for other financial goals.

If you have federal student loans, on the other hand, it could make sense to wait. Payments have been paused and interest charges have been waived for most federal student loans since March of 2020, with the current pause scheduled to expire on Aug. 31, 2022. The Biden administration has also long hinted at the possibility of student loan forgiveness, and some officials have suggested that a decision on that front would be made before the payment pause ends.

For these reasons, it can make sense to hold off on making extra payments (or any payments at all) on federal student loans right now. If you wait it out, you could get several more months at 0 percent APR, forgiveness of some of your federal student loan debt or both.

The bottom line

Which student loan you pay off first is up to you, but the best choice is usually the one with the highest rate or the fewest consumer protections. The best strategy for you can also vary based on the type of student loans you have and how much student loan debt you have in total.

No matter what you decide, it’s best to be strategic with your student loans. A student loan debt repayment plan that takes loan rates, terms and benefits into account could help you get out of debt faster while maintaining as many consumer protections as you possibly can.

Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics. In addition to writing for Bankrate and CreditCards.com, Johnson does ongoing work for clients that include CNN, Forbes Advisor, LendingTree, Time Magazine and more.
Edited by
Student loans editor