At a Glance

In 2021, the average cost for tuition and fees at universities in the U.S. was $14,512 per year. The total amount of undergraduate student aid provided by federal loans in the U.S. totals more than $45 billion, and 44% of four-year public institution students had student loans.

Overall, 55% of graduates in the U.S. have student loan debt at an average of $16,190.

Student loan debt could range from a few thousand dollars to $100,000 or more, depending on your combination of schools, undergrad and graduate degrees, and private and federal student loans. If you’re one of the people who falls into the category of owing student loans, the idea of paying them off may seem like a distant dream, especially if you have multiple.

In this article, you’ll learn:

Questions for deciding which student loan to pay off first

Before you can know which student loans to pay off first, there is some information you must gather and questions to ask yourself. Doing this preparation ahead of time can help ensure a more successful repayment plan.

What are your total balances and interest rates?

First, take a look at all of the loans you currently have and write down the loan provider, the most recent balance, and the interest rate. Also record if there is a required minimum monthly payment.

If you have federal loans, you can gather this information through the loan carrier or from the National Student Loan Data System, which is the U.S. Department of Education’s central database for student aid.

For private loans, you should find the information you need on your most recent loan statement, or in your account through the loan provider’s website.

Are you making minimum student loan payments?

Most student loans require a minimum monthly payment, which you should already be making if you’re currently paying off your loans. Knowing how much you are required to pay each month can help you determine your budget and prioritize which to pay off first with extra funds.

Additionally, it’s important to continue making at least the minimum payment on all loans in order to keep your debts in good standing. Otherwise, your credit score may be negatively affected, which could mean higher rates on future loans and increased difficulty with refinancing or other debt consolidation efforts.

Is any of the debt protected?

Depending on your circumstance, you may not have to make payments or your debt may not be accruing interest yet, and knowing if this applies to any of your loans can help you prioritize which ones to pay off first.

For example, subsidized federal student loans don’t accrue interest while you’re at school. In fact, most federal student loans don’t require you to start repayment until six months after you leave college or drop below half-time enrollment. Other loans may not accrue interest until you are employed, or may change if you become unemployed.

Check with your loan provider to learn when you must start making payments, when interest begins to accrue, and if there are other protections on the loans to be taken into consideration.

Do any loans have prepayment penalties?

If your loans are only federal or private student loans, you do not have to worry about being penalized for prepaying your loans or paying them off early.

On the other hand, some education-related personal loans for students or consolidated loans may not allow you to prepay the debt without facing a penalty. Talk to your loan provider or read the loan agreement to learn if this is the case, because if so, these loans should not be prioritized to be paid off first.

What other debts do you have

Student loans are likely one of several other debts you may face, such as auto loans, a mortgage, medical bills, credit card debt, or more. While paying off student loans is important, it’s also important you’re able to continue to make at least the minimum payments on your other debts in the meantime.

Knowing how much you have to pay each month for other debts compared to your monthly income can help you determine a budget for repayment, and calculate how long repayment may take.

Factors to consider when paying off student loan debt

Not all student loan debt is created equal. Before deciding which type of repayment method is right for you, there are other factors you should consider when determining how to prioritize paying off these loans.

Paying off subsidized or unsubsidized loans

Depending on your financial need when you applied for student loans, you qualified for either a subsidized or unsubsidized loan.

Subsidized loans are available to undergraduates with financial need, and interest is deferred while you’re in school (at least half-time), for the first six months after you leave school, and during a period of deferment.

On the other hand, unsubsidized loans do not have a requirement to demonstrate financial need, and you’re responsible for paying interest during all periods.

If you have a mix of both types of loans, you may want to focus on paying off the unsubsidized loans first since they likely have higher interest rates and do not have a deferment or grace period.

Paying off private student loans first

Private student loans are offered by private lenders, versus federal student loans which are offered by the federal government. In most cases, private loans have stricter repayment options and forgiveness, and they typically have higher interest rates. Because you’re likely paying more for private loans, you may want to prioritize paying these off first.

Look into refinancing at a lower interest rate. If you qualify, this can help reduce your monthly payments and how much you’re paying in interest, which will help you pay off the loans faster.

Additionally, if you have a combination of private and federal loans, put extra payments toward the private loans. You should still maintain the minimum payment on federal loans, but they likely have more repayment options (such as income-driven repayment) and may be more flexible with your budget.

Fixed vs. variable loans

Some loans have a fixed interest rate, meaning the interest rate won’t increase or decrease over time. Others have a variable interest rate, which means it could change over time. If you have a loan with a variable interest rate, it may make most sense to pay that one off first, as the rate could increase and you’d be paying more in interest over time.

Read your loan’s terms and conditions

Be sure to read the fine print regarding your loan’s terms and conditions, specifically around repayment. For example, some federal loans may allow you to negotiate a lower payment based on your income, or even qualify for loan forgiveness. Private loans are much less likely to offer these benefits, so you may want to prioritize paying off those private loans first.

Loan Repayment Methods

Now that you have a general idea of the types of loans you have, how much you owe, and which ones you should focus on paying off first, it’s time to decide which loan repayment method is right for you.

There are two primary loan repayment methods:

  • Debt snowball method
  • Debt avalanche method

While both methods require you continue to make the minimum payment on all but one of the loans, the approach is slightly different.

Debt snowball method

Using the debt snowball method, you pay down the loan with the smallest balance first, regardless of interest rate, while still making minimum payments on your other debts. Once that loan is paid off, you move on to your second smallest one, and so on until all the debts are paid off.

Experts recommend the snowball method because as you eliminate your debts, you gain momentum (like a snowball) and stay motivated to continue to make payments. One downside to this method is you may pay more interest in the long-term, but with predictable payments and a roadmap to being debt-free, you’ll be more motivated to get there.

When using the snowball method, you should:

  • Make a list of all of your student loan debts, from smallest to largest (regardless of interest rate).
  • Make the minimum payments on all of your balances, but pay as much as you can toward the smallest balance first.
  • Once the smallest debt is paid off, repeat this process with the next smallest debt.
  • Be sure to track your progress, including payment amounts, and cross your debts off the list as they are repaid.

Related article: How to snowball debt

You can also use a debt snowball calculator to help estimate your savings. Enter your debt details, decide which debt to pay off first, determine how much to put toward the lowest debt balance, and repeat.

Debt avalanche method

In the previous section, we outlined how important it was to first understand your total balances and the interest rates for each loan. Knowing this, you may want to consider paying off the highest interest loans first. This repayment method is called the debt avalanche method.

The idea with the debt avalanche method is it will help you save the most money in the long-run because you’ll be saving money on interest. And once paid off, you’ll be pocketing what you paid in interest instead of putting it toward the loan.

When using the debt avalanche method, you should:

  • List your loans in order of highest to lowest interest rate.
  • Make the minimum payments on all of your balances, but pay as much as you can toward the loan with the highest interest rate.
  • Once that loan is paid off, move on to the one with the next highest interest rate.
  • Repeat until all debts are paid off.

You can also use a debt avalanche calculator to estimate your savings using this method.

This method may be right for you if you want to save money on interest, have multiple high-interest loans, or your largest balance is a high-interest loan.

5 reasons to pay off student loan debt

  1. High interest rates. Undergraduate federal loans have a fixed interest rate of 3.73%, graduate unsubsidized loans have an interest rate of 5.28%, and loans from private lenders can have interest rates that reach 10% or more. Over time, these interest rates will contribute significantly to your overall loan balance, especially if you have a large balance or multiple loans.
  2. Risk of defaulting. Defaulting on federal student loans can lead to wage garnishment, meaning your earnings are required by a court order to be withheld by an employer for the payment of a debt.
  3. Not dischargeable in bankruptcy. Even if you have to file for bankruptcy, you’ll likely have to continue making payments on your student loans.
  4. Could impact long-term financial goals. Drowning in student loan debt can make paying for other debts, such as a mortgage, auto loan, or credit card debt, more difficult. Paying off these debts can also lower your debt-to-income ratio, which can help you meet your financial goals faster.
  5. Tax breaks have limitations. While having and repaying student loans can give you a tax break, this deduction has limitations. The deduction is limited to $2,500 of student loan interest you pay, and also begins to phase out once your income reaches $70,000 until it’s eliminated at an adjusted gross income of $85,000. It’s likely you’ll end up paying more in interest over time than what you’ll save through the tax break.

Commonly asked questions

How to pay off multiple student loans?

Once you take stock of all of your student loans, including understanding your total balance and each loan’s interest rate, prioritize the loans you should pay off first (such as unsubsidized federal loans or private loans). Then, use the debt snowball method or debt avalanche method to repay the debts.

Should I pay off an auto loan or student loan first?

If your student loans are private loans, or have higher interest rates than the auto loan, you may want to prioritize paying that off first. On the other hand, if you only have federal student loans, their lower and fixed interest rates and flexible repayment options may make paying off your auto loan first a smarter decision.

Should I pay off a mortgage or student loan first?

Student loans and mortgages are considered to be “good debt” because they are forms of debt you can take on in order to purchase something that could increase your net worth. Look at the interest rates of the loans, as well as the total amount owed for each. Choose the snowball method or avalanche method as a repayment plan and follow that direction.

Learn More: Should You Pay Off Student Loans or Buy a House