Which Student Loans Should You Pay Off First To Save Money?

To save the most money, it's usually best to pay off high-interest private student loans before federal loans. However, interest rates, forgiveness eligibility and repayment options can all affect the right strategy for your situation. Consider the following factors before deciding which loan to target first: 

• Consider the loan type: It’s generally more financially beneficial to pay your private loans first. 

• Evaluate the interest rate: Aim to pay your highest interest rate loans first. 

• Weigh loan forgiveness: If you're pursuing forgiveness, it doesn't make sense to make extra payments.

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Key Takeaways

• Deciding which student loans to pay off first usually starts with the interest rate. Targeting your highest-rate loans, often private ones, saves the most money over time.

• Private loans typically deserve priority because they cost more and protect you less. They often carry higher rates and lack federal options like income-driven repayment (IDR) plans and forgiveness.

• Skip extra payments if you're pursuing Public Service Loan Forgiveness (PSLF) or IDR forgiveness. PSLF can erase your balance after 120 payments, and IDR forgiveness comes after 20 to 25 years.

• Cover your financial bases before throwing extra cash at student loans. Capture your full 401(k) match, build three to six months of savings and clear high-interest debt first.

• Refinancing federal loans into a private loan can simplify repayment but costs protections. You give up PSLF eligibility, IDR access and interest subsidies when you refinance with a private lender.

Summary generated by AI, verified by MoneyLion editors

Federal vs. Private: Which Student Loan Should You Pay Off First?

As a general rule, it's usually better to pay off private student loans before federal student loans. Private loans often carry higher interest rates and don't offer the forgiveness programs, IDR plans or other protections available with federal loans.

Prioritize private student loans if:

• The interest rate is higher than your federal loan rate.

• The loan doesn't offer IDR options.

• You don't plan to pursue a federal forgiveness program.

• The interest rate is variable and could increase over time.

Unsubsidized vs. Subsidized Federal Loans

Subsidized federal loans don’t start accruing interest during a deferment or if you’re enrolled at least half-time in college. Unsubsidized loans, on the other hand, accrue interest the minute you take out the loan. 

When To Prioritize Unsubsidized Loans

• Your unsubsidized loan carries a higher interest rate than your subsidized loan.

• You’re still in school. 

• You can make extra payments on one loan.

• You have equal rates on both your subsidized and unsubsidized loans.

Two Payoff Strategies — Avalanche vs. Snowball

Two of the most effective ways to pay off student loans faster are the debt avalanche and debt snowball methods. Here's how they work.

When Paying Off Student Loans Early Doesn't Make Sense

Sometimes making extra payments toward your student loans isn’t the best idea. Here are scenarios when you shouldn’t pay off your loan early:

• IDR plan: If you're part of an IDR plan and send in qualifying payments for 20 to 25 years, the remaining debt may be forgiven. It doesn’t make sense to put extra payments towards a debt that will eventually be forgiven.

• PSLF: If you plan to work full-time for a nonprofit or the government, your remaining federal loan balance can be wiped away after 10 years of qualifying payments. 

Quick Decision Guide

• Choose the avalanche method if you want to minimize interest costs.

• Choose the snowball method if you need motivation from quick wins.

• Prioritize private student loans when interest rates are higher and forgiveness isn't available.

• Stick to minimum payments if you're pursuing loan forgiveness.

Before You Aggressively Pay Down Loans, Check These First

If you’re ready to make extra payments on your loan, you may want to evaluate other financial priorities first: 

• Does your employer have a 401(k) match? Instead of paying more toward the loan, take advantage of capturing the full match. You don’t want to pass up free money given to you by your employer. 

• Do you have an emergency fund? It’s a good idea to have three to six months of emergency savings to cover unexpected expenses. 

• Do you have high-interest debt? You should pay off personal loans, credit card balances or other high-interest debt before using that extra money toward paying off your student loans. 

• Do you have insurance coverage? Make sure you have health, auto and disability coverage before making extra payments on your loans.

• Will you qualify for student loan debt forgiveness? If you do qualify, then don’t make extra payments. 

Should You Refinance To Simplify Repayment?

Refinancing replaces one or more student loans with a new private loan, ideally at a lower interest rate and with a single monthly payment.

When Refinancing Makes Sense

• You have multiple servicers and loans and want to simplify repayment.

• You qualify for a lower interest rate than you're currently paying.

• You have a stable income and don't expect to need an IDR plan.

When Refinancing Doesn't Make Sense

• You don't qualify for a significantly lower interest rate.

• Your job situation or income is uncertain.

• You may need federal protections such as deferment, forbearance or an IDR plan.

• You're pursuing loan forgiveness programs like PSLF.

Federal Benefits You Lose If You Refinance

• Loan deferment or forbearance if you run into hardship

• PSLF eligibility

• IDR plans

• Interest subsidies on subsidized loans when you qualify

• Access to federal rehabilitation programs if you default

If you're still weighing student loan consolidation vs. refinancing, this is the point to compare both paths.

Your Next Steps

1. List all the loans you have and their details. Record the balance, interest rate, loan type and monthly minimum for each so you can better understand how to manage student loan payments.

2. Check your federal forgiveness eligibility.

3. Separate your private from your federal loans. That split will make it easier to decide how to get out of student loan debt based on cost, protections and payoff goals.

4. Determine which payoff method works best for your financial picture. 

5. Confirm that you’ve met other financial priorities first: contributing to your 401(k), having an emergency fund, paying off high-interest debt, etc.

6. Refinance your loans if it works for you.

7. Monitor your progress.

8. Don’t be afraid to make adjustments.   

FAQs 

Should I pay off private or federal student loans first? 

You typically want to pay your private loans first because they have the highest interest and there are no debt forgiveness programs. 

What's the difference between debt avalanche and debt snowball? 

With a debt avalanche, you make all the minimum payments on your debts, and use any extra money you have toward the balance with the highest interest. With a debt snowball, you make minimum payments on all debts, but use any extra money to pay toward the smallest balance. 

Does paying off a student loan early hurt my credit score? 

Closing your account early may temporarily hurt your credit score because it impacts your credit mix and age. However, the dip will be temporary. 

Should I pay off student loans if I'm going for loan forgiveness? 

If you’re pursuing loan forgiveness, then it’s a mistake to pay off your student loans. It doesn’t make sense to pay extra on a loan that will eventually be forgiven. 

Can I pay off one student loan at a time while making minimums on the rest? 

Yes, you can pay off one student loan at a time while making minimum payments on your other loans. 

Does refinancing change which student loan I should pay off first? 

Yes, because it changes your loan terms, interest rates and federal benefits.

Key Terms

• Subsidized federal loan: A need-based federal loan where the government pays the interest while you're enrolled at least half-time, during the six-month grace period and during deferment.

• Unsubsidized federal loan: A federal loan that accrues interest from the day it's disbursed, so the balance can grow before you start repaying.

• IDR plan: A federal plan that caps monthly payments based on income and may forgive the remaining balance after 20 to 25 years. Plan options are changing in 2026, so confirm current availability.

• PSLF: A program that can forgive your remaining federal loan balance after 120 qualifying payments of full-time public-service work.

• Debt avalanche: A payoff strategy that sends extra money to your highest-interest loan first to minimize total interest paid.

• Debt snowball: A payoff strategy that sends extra money to your smallest balance first to build motivation through quick wins.

• Student loan refinancing: Replacing one or more loans with a new private loan, usually at a lower rate. Refinancing federal loans forfeits federal protections.

Summary generated by AI, verified by MoneyLion editors

Sources

• Federal Student Aid. "Student Loan Forgiveness (and Other Ways the Government Can Help You Repay Your Loans)."

• Consumer Financial Protection Bureau. "Student loan forgiveness."

• Consumer Financial Protection Bureau. 2024. "What is student loan deferment?"

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