Which Student Loan Should You Pay Off First?

Pay off high-interest student loans first. That usually means prioritizing private loans over federal loans.

Ryan LaneNovember 20, 2020
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Pay off the student loan with the highest interest rate first. That will save you the most money over time.

But if getting rid of small balances one by one motivates you more, go that route regardless of interest rate. When your goal is to pay off student loans fast, the best strategy is the one that keeps you on track.

Pay private student loans first

Private student loans come from commercial lenders, not the federal government. These loans generally have fewer repayment options or opportunities for forgiveness than federal loans — and higher interest rates.

You'll likely want to get any private loans off your plate first. Consider doing the following to help with this:

  • Refinance at a lower interest rate. There's little downside to refinancing private student loans if you can qualify for a better interest rate. Refinancing can reduce your monthly payments, saving you money and helping you pay off private loans faster.

  • Pay the minimum on federal loans. If you're going to make extra student loan payments, put them toward your private loans. To increase the amount you can overpay, consider enrolling in an income-driven repayment plan to decrease your federal loan bills. More interest will accrue on those loans if you do that, so calculate your total costs.

Always pay at least the minimum on all your student loans.

Pay off high-interest loans first

Once you’ve decided which type of loan to attack first, choose a strategy. Getting rid of loans in order of the highest interest rate is called the debt avalanche, and it will save you the most money. Paying off a loan with a 4.53% interest rate, for instance, lets you pocket 4.53% of the balance each year you would have been in repayment.

Here’s an example: Paying off a $10,000 loan at 4.53% interest in five years, rather than the standard 10-year repayment timeline, will save you about $1,259 in interest. Paying off a $10,000 loan at 7% interest in five years instead of ten years, however, will save you $2,050 or $794 more.

Pay off small loans first

Some borrowers like watching their loans disappear, which encourages them to continue focusing on debt payoff. If that sounds like you, use the debt snowball method. You’ll pay off the smallest student loan first, rather than the one with the highest interest rate.

You can also opt for a combination method. Rank your loans by interest rate, and if several have the same or similar rates, pay off the smallest one first. You’ll still get some savings from choosing the debt avalanche strategy, but you’ll enjoy early, quick wins, too.

As you pay off each loan, roll over your payment to the next highest interest rate or the next smallest balance.

Pay attention to the big picture

Not everyone should pay off student loans early. First, make sure you’ve:

  • Saved at least a month of expenses for emergencies.

  • Started saving automatically for retirement, either by getting the company match on a 401(k) or putting money in a Roth IRA.

  • Made a plan to pay off credit card balances, which often have the highest interest rates of all.

If you're not quite ready to aggressively repay student debt, some strategies can still help you chip away at your balance. For example, making biweekly loan payments is an easy way to shrink your repayment term. Refinancing also has no fees, and is a no-brainer if you have private student loans.

Estimate your potential refinance savings

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