Refinancing 14 March 2023

Which Student Debt Should You Pay Off First

By weighing the pros and cons of each loan option, you can determine which debt should be paid off first and how best to achieve financial freedom.

which student debt to pay off first

Managing student debt can be stressful, and it can be beneficial for students to understand and prioritize which debts to tackle first. With an organized approach and a little bit of patience, paying off your student loan debt can be more manageable. Consider your interest rates, repayment terms, the timeline for payoff, and the potential tax implications when finalising decisions about which loans to pay off first. 

Identify Which Loans You Have

The first step is to identify what kind of loans you have. There are two types of loans: federal and private. Federal loans are provided by the state or government while private student loans are provided by banks, credit unions or other financial institutions. 

Once you know the type of loan you have, study the repayment terms and interest rates to highlight the loans that are easier to pay off. Federal loans typically offer more flexible repayment terms than private loans. If you have multiple loans from the same lender, look into consolidation or refinancing options to reduce the amount of interest paid over time. 

Prioritize Your Loans

When you have multiple loans its important to organise them. The factors to consider while prioritising are:

Interest Rates:
First, review the interest rates associated with each loan and prioritize paying off those with the highest rate. If you have variable interest rates and check how much they cost over the term of the loan. 

Loan Balances:
Calculate your loan balances to think about the kind of strategy you want to go for. You may choose to pay off the small loans or the major ones depending on the different methods that you finalise. 

Loan Terms:
Understanding the loan terms is important as some loans may charge you a fee for early payoff and some loans may have fixed repayment terms. Before you proceed with your decision check with your lender on your options for payoff. 

Forgiveness Programs:
Some loans are eligible for forgiveness programs and you may choose to apply for that instead of paying them off. However, getting approved for a forgiveness program is not easy and there is a list of criteria to meet before you can apply. 

Strategies to Pay off Loans

There are three main methods considered to pay off loans. The Debt Snowball, the Debt Avalanche and Loan Consolidation.

Debt Snowball Method

A debt snowball method is a popular approach to paying off debt. By starting with the loan that has the lowest balance, you can quickly pay it off and use that momentum to tackle larger loans. This strategy works because it provides quick wins, which increases motivation and inspires financial discipline.

The benefit to the debt snowball method is that when focusing on one loan at a time rather than all at once, debt repayment can become more manageable.  The debt snowball is best suited for those who need a psychological boost while paying off their loans and are willing to forego the time and money saved by targeting high-interest loans first.

Debt Avalanche Method

The debt avalanche method is an approach to paying off debt that focuses on reducing the amount of interest accrued over time. This strategy involves tackling loans with the highest interest rates first and then working your way down to those with lower rates. Although it takes longer to see results with this method, you can save money by avoiding excessive interest payments over time.

The debt avalanche is best suited for those who are patient and disciplined, as it can take longer to see progress. This method is more effective if you have multiple loans with different interest rates.  By focusing on the loan with the highest rate first, you can make significant headway in reducing your total debt faster.

Loan Consolidation

The third method to pay off debt is to take up loan consolidation. Basically, you take one big loan to pay off all other loans. The process for loan consolidation for federal and private is a bit different.

Federal Loans:

If you have multiple federal student loans, you can combine them into one larger loan with a single monthly payment and potentially lower interest rate. Loan consolidation can also extend the repayment term for up to 30 years, making it easier to manage the debt load. Some consolidation of loans can also give you eligibility for loan forgiveness programs. You can apply for the Direct Loan Consolidation program online through Federal Student Aid.

Private Loans:

Private student loan consolidation is also a great option for those with multiple private loans. Unlike a federal loan consolidation, available through the government-backed Direct Consolidation Loan program, private loan consolidation can be done through a bank or lender. This allows borrowers to combine their existing loans into one larger loan and potentially reducing their interest rate and monthly payments. This way you can also reduce the number of creditors you have to keep track of, making repayment easier.

However, do your research on different lenders and compare their terms before committing to a new loan. This will help ensure that you get the best deal possible so that you can pay off your student debt with minimal interest over time.


Should I pay off unsubsidized or subsidized loan first?

The short answer is that it depends on your individual financial situation. If you have both subsidized and unsubsidized loans, you may want to prioritize paying off the unsubsidized loan first due to its higher interest rate. On the other hand, if your subsidized loan’s interest rate is higher than the one associated with your unsubsidized loans, then paying off the subsidized loan first may be more beneficial. If you’re able to make extra payments, it’s best to target a loan with a higher interest rate first in order to save money on interest over time.

Which student loans should I pay off first?

In general, it is best to prioritize paying off student loans with the highest interest rate first in order to save money on interest over time. You can pay off your debt in three different strategies, debt snowball, debt avalanche, or consider loan consolidation. Each method has its advantages so choose the strategy that works for your situation.

Should I pay credit card or loan first?

Pay your debt that has the highest interest rate first, regardless of whether it is a credit card or loan. This will save you money in the long run.

Final Thoughts

In conclusion, it is important to understand your financial situation and then prioritize paying off student loans with the highest interest rate first. Additionally, researching consolidation or refinancing options can help simplify repayment as well as potentially reduce your interest rate.