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

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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!

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, 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 August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and 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 cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. 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. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.