Which Student Loan Should I Pay Off First? 5 Steps You Need to Take

Renee Layberry
May 4, 2021

If you're asking yourself "which student loan should I pay off first?" You've come to the right place.   There's no fluff here, the student loan with the highest interest rate is logistically the loan you should pay off first. But hey, we get it, it's not always that black and white and if that strategy isn't what motivates you, you'll need one that does.   When it comes to conquering debt, you'll want to find a method that holds you the most accountable and we're here to help guide that strategy to get you debt free even faster.   One thing to always remember is that late student loan payments, or failure to make those payments, can put you into default. This can damage your credit and sometimes even lead to garnishment of your wages. So, it’s crucial that you’re always paying at least the required minimum – on time – to remain in good standing.   

1. Organize your student loans

Before you come up with the best way to pay off multiple student loans that's specific to you, you need to get all of your student loan information in order. That'll make it easier to manage and keep track of.    The best way to do this is with a spreadsheet. Have dedicated rows for the names of all of your lenders. In columns, put the total amount owed to each, the interest rate on your loan, the minimum monthly payment, and the monthly due date.    It doesn’t hurt to look at an amortization schedule for each loan. That'll give you a better understanding of where your money is going. You'll see how your payments are divided between the principal and interest over the life of the loan. You can also determine how much you’d be able to save if you’re in a position to renegotiate the interest rate or to make larger monthly payments.  

Prioritize your loans

Now that you have all of the information in front of you, you need to decide which student loans to pay off first. There are two main approaches that you can use: the avalanche technique or the snowball strategy.   Photo by StockSnap

Pay off loans with the highest interest first

If you are looking to save the most money, the key is to reduce the overall amount of interest that you pay over the life of the loan. If you have several loans, some may have higher interest rates than others.    By making larger monthly payments on these higher-interest loans, you’ll pay them off more quickly. The benefit here is that the faster you pay these down, the less interest will accumulate. Ultimately, this approach will reduce the total amount you pay on this loan.   This strategy of payment is often referred to as the avalanche technique because it tackles the debt at the top. You will continue to make any minimum payments you have on other loans with lower interest rates, but put the most money on the highest interest loan. Once you’ve paid the first loan in full, you move on to the next highest interest rate one and so forth until they have all been paid in full.  

Or start with the smallest loans first

A different strategy involves starting with loans that have the smallest amount owing – you don’t even look at the interest rate.   Called the snowball debt strategy, it may be more motivational for some people. You pay each small loan in its entirety and move onto the next one.   To make the snowball approach work, you put any extra cash on the loan with the smallest balance. Make sure all of your minimum payments on your other loans are made first to keep you in good standing.    After the first small loan has been paid off in full, you continue paying the same amount – but put that payment onto the next loan with the smallest balance. Remember to also add the minimum amount for that next loan (that you've been making all along) to the monthly payment. As each loan gets paid off, the monthly payment will get larger, which will help pay down each subsequent loan more quickly.   coins, a ruler, and a calculator sitting on a bill Photo by Steve Buissinne

2. Consolidate or refinance your loans

Sometimes even the most organized spreadsheet doesn’t help much if you’ve got to manage and juggle monthly payments on several loans. In this situation, the ideal option may be to consider refinancing or consolidating your loans.  


Refinancing your student loan debt can be used for any type of loan, whether they are federal or private, and can even include a mix of both. All of your student loans will be rolled into one new loan, which will have a new set of terms and interest rates.    If you have a steady job and an excellent credit history, then you may be able to secure a better interest rate than on your original student loans. This will allow you to pay less over the life of the loan.   If you don't have a reliable income or good credit score, but still would like to refinance, you may be able to do so by securing a co-signer with good credit who is willing to put their name on the loan. It is important to note, though, that once a federal loan has been refinanced, it will no longer qualify for deferments or forgiveness.  


When you consolidate your student loans, you combine them into one new loan. That loan has a fixed interest rate based on the average of the interest rates of the loans being consolidated. This new interest rate may or may not provide you with a lower total monthly payment, but it will leave you with just one monthly payment instead of several.   You can consolidate any loans, but only federal student loans can be consolidated in a Direct Consolidation Loan through Federal Student Aid.     In both refinancing or consolidation, you usually restart the loan term. If you’ve been making payments on the loans for a while, that longer term can cost you more in interest, even if the actual interest rate is somewhat lower. But if you are early in your repayment when you refinance, and you obtain a lower interest rate on your new loan, you may be able to save a significant amount of money in the long run.   teacher in a class room as kids raise their hands to answer a question Photo by 14995841

3. See if you qualify for student loan forgiveness

There are some situations in which you may qualify for some form of loan forgiveness. That means some of your student loan debt is discharged and you are no longer required to pay it back.  

Public service loan forgiveness

The Public Service Loan Forgiveness program can help those who are working full-time in the public service realm to get out of student loan debt. It will allow those who qualify, have a Direct Loan, and have made at least 120 payments under a repayment plan, to have the balance of their loans forgiven. Qualified individuals include full-time employees of both the government and not-for-profit organizations.   If you don’t have a Direct Loan, but you do have other federal student loans, you can consolidate them into a Direct Loan in order to take advantage of the forgiveness program.  

Teacher loan forgiveness

Teachers may also qualify for a form of student loan forgiveness. The requirements here are that they have taught in a full-time position for at least five consecutive academic years in a low-income elementary or secondary school, or in an educational service agency.    This forgiveness program allows for up to $17,500 loan forgiveness on Direct Loans or FFEL Program loans.  

4. Take advantage of deferments

Another way to tackle your student loan debt for federal student loans is to take advantage of any interest deferment or grace periods.    With some federal loans, there's no interest while you're in school, and for a short time after graduation. If you have extra money during this time, you should start making payments. These payments will bring down the principal amount of the loan, which reduces the amount that interest is calculated on.   The Cares Act was passed in Congress in March 2020. This provides relief on U.S. Department of Education-held federal student loans. It includes the suspension of loan payments, collections on defaulted loans, and temporary 0% interest rates. These loan repayment relief measures have been extended through Dec. 31, 2020. This is a good time to make extra payments, if you can. You'll reduce your overall debt by applying money to it when no interest is accruing.

5. Choose the right approach for you

The most important part of paying off your student debt is developing a plan. It doesn't even matter as much the type of method you choose for that plan. Consider all of your options. Look at your financial situation. Then determine which path will make the most sense for your specific situation.    Deciding which loan to pay off first will largely depend on your loan interest rates, your extra cash flow, and your current credit situation. Whether you target loans with small balances or highest interest rate loans, getting started early is key to better managing your debt.