Which Student Loan Should I Pay Off First?

Many graduates leave school with student loan debt. In fact, the Federal Reserve reports a median loan balance between $20,000 and $24,999 among those who owe. 

In many cases, that balance is spread across multiple loans, including both private and federal loans. This can leave borrowers wondering: Which student loan should I pay off first?

This guide explains different student loan payoff strategies so you can make informed choices about which debts to prioritize.

Current private student loan rates

Factors to consider when choosing a student loan to pay off first

Borrowers with multiple student loans should consider their overall financial situation when they decide which debt to pay off first. There are a few key factors to consider, including the following: 

• Loan type: Many borrowers have both federal and private student loans. Typically, private student loans have fewer borrower protections than federal loans, so it usually makes sense to pay off private loans first.
• Interest rate: If you want to save as much money as possible, you should prioritize paying off your loans with the highest interest rate first. 
• Loan balance: If you want to score quick wins and reduce the number of loans you're paying fast, it makes sense to first focus on paying off your student loans with the lowest balance. 
• Forgiveness or income-driven repayment (IDR):  Borrowers with federal student loans may have access to IDR plans and forgiveness options. IDR plans create more room in your budget, while forgiveness programs reduce the total amount you have to repay. If you can cap payments at a small percentage of income and earn forgiveness, it may not make sense to pay off these loans early. 

Debt avalanche vs. debt snowball

The debt avalanche and the debt snowball method are two popular approaches to debt payoff that you should consider when repaying your student loans.  

While the debt avalanche is the most mathematically efficient plan, the debt snowball method offers quick wins to help you stay motivated. 

Both methods can work. But the right one for you varies based on your situation, so consider the key differences between the debt avalanche vs. snowball to decide which makes sense. 

When it makes sense to pay off the highest-interest student loans first

If you follow the debt avalanche method, you'll work on paying off your loan with the highest interest rate first. After you’ve eliminated that debt, put any money you have available for extra payments toward the loan with the next highest rate until you're debt-free. 

Since this method focuses on the most expensive debts first, it can save you the most on interest over your student loan repayment period. If you are motivated by saving as much money as possible, the avalanche method is the better choice.

When it makes sense to pay off smaller student loan balances first

In contrast, the debt snowball method involves paying off your loans with the smallest balance first. 

As you pay off smaller debts, you’ll work your way up to paying off your larger ones. The money you have available for debt repayment grows as you eliminate debts and the attached minimum monthly payments, so you gain momentum over time. 

This method focuses on eliminating each individual loan from your life as quickly as possible. Although it’s not as mathematically efficient, many borrowers stay more motivated due to the quick wins along the way. 

“If you're the kind of person who's impatient and needs to see progress, or you get discouraged, then the snowball method is better than nothing,” says Howard Dvorkin, CPA and Chairman of Debt.com. Dvorkin continues, “But if you can keep your eye on the prize, go avalanche all the way.”

Federal vs private student loans: Which should come first?

The type of loans you have — federal, private, or both —also affects which student loan payoff strategy makes sense for you.

“Almost always, federal loans have lower overall interest rates,” says Dvorkin. “So focus on private loans first. This is especially true if your private loans come with variable interest rates. Those rates can fluctuate, while federal loans are locked in – once you see that number, it doesn’t ever change.”

Additionally, federal student loans offer borrower protections that private loans lack, including income-driven repayment and loan forgiveness opportunities. It makes sense to prioritize paying off private student loans that don't provide these benefits.

How forgiveness and repayment plans affect payoff strategy

If you have federal student loans, the possibility of loan forgiveness affects whether you should try to repay your debt early. 

There are several options to get federal student loan debt forgiven, including the Public Service Loan Forgiveness program or forgiveness after making a certain number of payments on one of several income-driven repayment (IDR) plans. 

Here’s a closer look at how these options could impact your repayment plans. 

Public Service Loan Forgiveness

If you are eligible for loan forgiveness through PSLF, making extra payments toward eligible loans may not make sense. 

If your end goal is to have the loan balance forgiven, you’ll generally want to minimize the amount you pay over time. Instead, redirect any extra money toward repaying other debts or growing your savings. 

Income-driven repayment plans

It also doesn't make sense to make extra payments on your loans if you're signed up for an income-driven repayment plan and hoping to get your loans forgiven over time. 

Under an IDR plan, eligible borrowers see their monthly payment adjusted based on their income. After 20 to 25 years of qualifying repayments, any remaining loan balance is forgiven. 

For those with a relatively low income and a large loan balance, aggressively paying down IDR-eligible loans may not reduce your total cost and could reduce the amount of debt forgiven in the future. Instead of sending extra money towards debts that are going to eventually disappear, use your available funds to pay down other loans, like private loans that don’t qualify for forgiveness 

On the other hand, borrowers enrolled in an IDR plan who expect their income to go up during the repayment term might find that paying extra toward federal loans does make sense. After all, a higher income will lead to a higher payment, which could mean you don't end up getting your debt forgiven in the end. 

As you decide on your repayment plan with PSLF and IDR options in play, the key is to determine if qualifying for forgiveness is realistic. This will help you decide whether to pay off your loans ASAP to save on interest, or to try to pay as little as possible until your debt can be wiped clean. You’ll need to match up your goals with your debt repayment choices. 

How refinancing can help simplify repayment

If you're juggling multiple loans and are interested in figuring out how to pay off student loans faster, refinancing is worth considering. 

When you refinance, you can combine multiple loans into a single loan with one monthly payment. Plus, it’s often possible to lock in a lower interest rate when you refinance, which can save you money on interest during your repayment period. 

However, refinancing isn't right for everyone. It's more likely to be the best student loan repayment strategy for those with private student loans, not federal loans.

“Borrowers with federal student loans should keep in mind that refinancing federal loans to private loans would eliminate the protections offered by the government, which is not always in their best interest,” says Leslie Tayne, Founder and Head Attorney at Tayne Law Group. 

“Also, it’s important to read the fine print when refinancing,” continues Tayne. “There can be hidden fees, such as early payoff fees, initial loan fees, etc. So do the math to be sure you are really saving money when refinancing.”

If you are interested in refinancing, make sure to compare options across multiple lenders. Start your search for the right refinancing solution with these top-tier student loan refinancing lenders.