Which student loans should you pay off first?

Do the math when deciding how to pay off student loans. (iStock)

After the college graduation celebrations wind down, the reality of student loan repayment kicks in. Deciding how to pay off student loans begins with working out a budget, but there's more to it than that. When creating a repayment plan, it's helpful to approach paying down student debt in the right order. 

Start with organizing your loans

The first step in deciding how to pay off student loans is drilling down to the details. Specifically, you should know:

  • The total number of loans you have outstanding
  • Whether loans are federal, private or a mix of each
  • Which loans are cosigned, if any
  • Whether your federal loans are subsidized or unsubsidized
  • Minimum payments for each loan
  • Loan interest rates and whether they're variable or fixed
  • When each loan's grace period ends, if applicable


Federal student loans offer a six-month grace period following the end of undergraduate studies before payments kick in. PLUS loans are the exception--repayment for those begin immediately after they're disbursed. 

The grace period gives you a chance to pick a repayment plan and come up with a strategy. Private student loan lenders can offer a grace period but it's not required. 

Choose a payoff method

When deciding how to pay off student loans, there are two basic approaches you can try: debt snowball or debt avalanche. 

The snowball method involves paying off loans from the lowest balance to highest. The avalanche method means paying down loans from the highest interest rate to the lowest. 

Mathematically, you'll save more money over time by choosing the avalanche method, said Meagan Landress, CSLP®, advisor for student loan consulting firm Student Loan Planner. According to Landress, the snowball approach is more behavioral since you're getting small wins along the way which can help with staying motivated. 


Set the order for student loan repayment

When there are multiple student loans in the mix, prioritization matters. When mapping out a repayment plan, consider following this order:

First: Variable-rate private student loans

Private student loans tend to have higher interest rates than federal loans. Variable-rate loans have an interest rate that's tied to a benchmark, meaning the rate could increase if the benchmark rate rises so it could be wise to get those out of the way sooner rather than later. 

Second: Fixed-rate private student loans

After variable-rate private loans, consider your fixed-rate private loans next. Though the rate is guaranteed for the life of the loan, it may still be higher than rates for federal loans, potentially costing you more in interest.

Unsubsidized federal loans, then subsidized loans. 

Unsubsidized federal student loans begin accruing interest right away so it makes sense to work on paying those down after making a dent in private loan balances. "Subsidized loans do not charge interest during in-school deferment, deferment or forbearance," Landress said. 

With unsubsidized and subsidized loans, you could follow the same snowball or avalanche approach. For example, you might pay down the highest rate unsubsidized loans first, then highest rate subsidized, followed by unsubsidized and subsidized loans with the lowest rates. 


Avoid repayment missteps

Loan consolidation or refinancing could help to streamline student loan repayment by combining multiple loans into one. But you should consider any trade-offs involved. That includes sacrificing deferment and forbearance periods, income-driven repayment options and public service loan forgiveness. 

Finally, watch out for these other mistakes when managing student loan repayment:

  • Avoiding your lenders when you're struggling to keep up with your payments.
  • Overlooking income-driven repayment options for federal loans.
  • Missing out on interest rate discounts because you haven't signed up for autopay. 
  • Falling prey to student loan debt relief scams.