You’re saddled with debt and don’t know which student loans to pay off first. When you’re dealing with multiple lenders, interest rates and balances, loan repayment can be difficult to manage.
That’s why your first step needs to be coming up with a plan for juggling your various loans. Read on to learn the best way to pay off multiple student loans and conquer your debt.
1. Not sure which student loans to pay off first? Start by taking inventory
Before getting into the nitty-gritty of which student loans to pay off first, you first need to clear up any confusion around your debt.
Start by writing down all your loans and lenders. Include your balance, interest rate, repayment plan and monthly payment. Make a note of whether each loan is federal or private.
Also make sure you have the login information for all your online accounts, so you can easily check your statements and, if you choose, make extra payments to pay down your balance faster.
Taking inventory of your student loans is an important first step if you’re dealing with multiple debts. It will help you see exactly what you’re working with, and from there you can devise a plan for managing your loans.
2. Make private student loans a priority
Getting back to our core question about which student loans to pay off first, the most obvious first step is to deal with any loans in danger of falling into default. Missing payments is a surefire way to mess up your credit for years to come.
But, assuming you’re keeping up with the minimum payments on all your loans, you can then go on to prioritize some loans over others. “Prioritizing” here means deciding which debt receives any extra payments you might be able to make on your loans.
When it comes to the best way to pay off multiple loans, it can be smart to focus on repaying private student loans before federal ones. While federal loans come with perks such as income-driven repayment and deferment, private lenders aren’t usually so flexible.
And if you miss three months of payments on your private loans, they can go into default and get reported to the credit bureaus, as opposed to about nine months for federal loans. You should make sure you’re keeping up with your private student loans to avoid this financial nightmare.
What’s more, private student loans typically have higher interest rates than federal ones, and you might be sharing your private loan with a cosigner. If you can swing extra payments on your private loans, you could get out of debt faster, save money on interest and make your cosigner happy, too.
3. Focus on federal student loans next
Prioritizing your private loans doesn’t mean you should neglect your federal loans — it simply means you need a strategy on which federal loans should receive any extra payments you can afford (after you’ve paid off your private loans, of course).
You might target unsubsidized federal student loans first, since these accrue interest right from the date of disbursement. If you have subsidized loans, which don’t accrue interest until repayment starts, these could be your next priority.
If you’re feeling overwhelmed by the number of loans in your name, you might consider combining them into a single Direct Consolidation Loan. While consolidating won’t save you money on interest, it could make repayment simpler.
Either way, make sure to carefully choose a repayment plan for your federal student loans. A standard 10-year repayment plan usually allows the fastest repayment of student loans. But if you’re struggling to pay off your debt, then you could consider opting for income-driven repayment or extended repayment.
It’s definitely worth taking advantage of the flexibility and options that come with federal loans when you need to. At the same time, avoid a plan with a longer timeframe or a lower repayment scheme if you can afford to pay off more, since it will cost you a lot more in interest over the years. Remember, the goal is to get rid of your debt — the sooner, the better.
4. Consider refinancing for better rates
If you have both federal and private student loans, then you may be dealing with high interest rates and multiple lenders, both of which can feel like major obstacles. However, there is a way to get better rates and simplify your debt: student loan refinancing.
Through refinancing, you could qualify for a more competitive interest rate on your federal and private student loans. Plus, you’ll get the chance to choose new repayment terms with adjusted monthly payments.
Refinancing multiple loans also lets you combine several loans into one — much like the Direct Consolidation loan mentioned above, except that private loans are also eligible. Instead of tracking several bills and due dates, you could be paying back a single monthly bill with a single rate — which can make the entire process a lot easier.
That said, you want to make sure you’re not accidentally raising the rate on any of your loans. If one of your loans already has a low interest rate, for example, you probably shouldn’t refinance it with the others.
It’s also important to note that refinancing federal loans turns them private, meaning you lose access to federal repayment plans and forgiveness programs. If you need those federal protections, avoid refinancing your federal debt with a private lender.
Finally, the perks of refinancing aren’t available for everyone. You’ll need decent credit and income to qualify, or you could apply with a creditworthy cosigner. Before changing your debt through refinancing, make sure you understand the pros and cons of the process.
If you ultimately decide it’s right for you, it could be a way to save on interest and make debt repayment a whole lot simpler.
5. Consider the debt avalanche or debt snowball method
While the advice above suggests which types of loans to try to pay off first, how do you prioritize among loans of the same type? For example, if you have several private loans, which student loan should you pay off first?
Here, there are two main approaches for picking:
- The debt avalanche method involves paying off your loan with the highest interest first, while paying the minimum amount on the others. I’ve subscribed to this method, and I just paid off my very last 7.9% interest loan! Now, I’m moving on to the rest, all at 6.8%. With the debt avalanche method, you can save money on interest.
- The debt snowball method involves paying off the loan with the smallest balance first and paying the minimum amount on the rest. If you have loans of $2,000, $8,000, and $13,000, then focus on the $2,000 loan first. This method is praised by personal finance guru Dave Ramsey for the psychological wins that you gain, in the sense that paying off the smallest balance first helps to build momentum, which can be highly motivating.
While the avalanche method comes down to math, the snowball method inspires motivation. Consider which one would be the better fit for you as you begin chipping away at your debt in earnest.
Whichever you choose, you might also consider the following plans for targeting your debt:
- Baby Steps: Ramsey, who has inspired many people to overcome debt, has created a signature 7-step plan toward debt freedom.
- Spending Diet: Created by personal finance author Anna Newell Jones, this plan caps non-necessary spending at $100 per month. At that level, you can still have some fun while putting most of your money toward your debt.
Finding the best way to pay off multiple student loans might not happen overnight
Although student loan debt can be a beast to manage, it’s always easier with a plan. Here’s what to pay off first:
- Focus on private loans first.
- Continue to make minimum payments toward your federal loans, and choose a repayment term that works for you.
- Consider refinancing for better rates and more streamlined debt repayment.
- Consider the debt snowball or debt avalanche methods to get out of debt faster.
- If you want some extra help, add on the Baby Steps or Spending Diet methods, or another of your choice, to stay on track.
Remember, a goal without a plan is just a wish, so create a plan that works for you and get started. Debt freedom, here you come!
Rebecca Safier contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|2.99% – 6.44%3||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 6.43%4||Undergrad & Graduate|
|3.18% – 6.07%5||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020. Information and rates are subject to change without notice.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of June 15, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 6/15/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.19% effective June 10, 2020.