Which Student Loans Should You Pay off First? 4 Steps to Help You Decide


You’re saddled with student loans and don’t even know where to start. When you’re dealing with multiple lenders, different interest rates, and varying balances, loan repayment can become difficult to manage.

Which loans do you pay off first? How do you create a repayment plan? In this post, you’ll find out what to pay off first and how to devise a plan to conquer your student loan debt.

1. Make Private Loans a Priority

When you have multiple loans, including federal and private student loans, all at various interest rates, it can feel overwhelming to begin paying off your debt. Where do you even start?

As a borrower, you should focus on paying off private student loans first, because these loans allow far less flexibility in how they can be managed. This truth becomes particularly clear when you look at repayment options, which often dictate a fixed minimum payment without any flexibility.

Plus, private loans don’t come with the same benefits as federal loans, including income-based repayment and loan forgiveness. Accordingly, it’s smart to make private loans your priority and to pay them off as quickly as possible.

2. Focus on Federal Loans

Just because you’re prioritizing your private loans, that doesn’t mean that you can neglect paying off your federal loans. It simply means that you need a strategy.

For instance, you might consider paying the minimum on your federal loans until your private loans are completely paid off. Then, you should put money toward your federal loans that you would have otherwise paid toward your private ones.

If you have federal loans only, then focus all of your energy on reducing your loan balances until you’re entirely out of the red. When paying back your federal loans, make sure to choose the right repayment plan for your financial life and goals.

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-based repayment.

It’s crucial to take advantage of the flexibility and options that come with federal loans if you really need them. At the same time, don’t choose a plan with a longer timeframe or a lower repayment scheme if you know that you can afford to pay off more. Remember, the goal is to overcome debt—the sooner, the better.

3. Consider Refinancing

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 seem like major obstacles. While managing multiple payments can be difficult, paying so much in interest can be frustrating.

However, there are alternatives. With student loan refinancing, you could be approved for a better interest rate and be able to consolidate your loans into one monthly payment.

Whether you have both federal and private student loans or only private ones, refinancing can be a smart choice. Typically, lenders prefer candidates with good credit scores, steady employment, and enough income to pay off their loans.

Since each lender has its own eligibility requirements, compare them to see whether any suit your needs. If you have federal loans only, then you could be better off keeping your current plan, since refinancing doesn’t offer benefits such as income-based repayment and loan forgiveness.

However, if you’re burdened with PLUS loans and a 7% interest rate, then you may benefit from refinancing and could even save thousands of dollars. Review your options carefully, and remember that refinancing is always something to consider.

4. Devise a Plan

Now that you know which loans to pay off first—begin with the private ones, then move on to the federal ones—and to always making at least the minimum payments for all of them, you need a plan.

How will you achieve debt freedom? Luckily, there are a variety of methods from which you can choose or even mix and match to reach your goal of becoming debt free.

  • 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%. Using the debt avalanche method, you can save a lot of money in 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 one method comes down to math, the other affords motivation. Though both methods work, it’s important to choose one to begin chipping away at your debt. With either method, you can also do the following in conjunction:

  • Baby Steps: Dave Ramsey, who has inspired many people to overcome debt, has created a signature 7-step plan toward debt freedom.
  • Spending Diet: Created by Anna Newell Jones, this plan caps non-needs spending at $100 per month. By limiting your expendable income to $100 each month, you can still have some fun while putting most of your discretionary income to debt.

Final Word

Though 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—carefully.
  • Choose either the debt snowball or avalanche method.
  • If you want some extra help, then add on the Baby Steps or Spending Diet methods 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!

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Published in Federal Student Loan Repayment, Pay Off Student Loans, Student Loan Repayment

  • Matt Bowman

    I’d like to add that focusing on paying down parent plus loans first can be beneficial in that it reduces a default and possibly ruining someone’s credit who co-signed a loan for you.

  • Peter Salamon

    the snowball method is “highly motivating psychologically” ok sure but you’ll pay more in the long run