Which Student Loan Should You Pay Off First for 2025?

by Alex Hillsberg , MA

Student Finance & Loan Expert

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Debt hounds a large share of students and can affect their lifestyles after graduation. According to 2024 data, 42.8 million borrowers in the United States have federal student loan debt, and some have other types of student loans. Having a repayment strategy is crucial when burdened by a multitude of loans.

With this in mind, I created a guide that helps students determine which student loan to pay off first. It covers repayment strategies like the debt snowball and debt avalanche methods. It also discusses the effect of loan forgiveness and refinancing on which loans to prioritize. 

Key Things You Should Know About Paying Off Student Loans

• The typical outstanding federal student loan debt is $37,853. If we include private loans, the average debt per student reaches around $40,681.
• Focusing on loans with the highest interest rates (debt avalanche method) can significantly reduce overall interest paid.
• The US government aims to cancel student debt with its planned measure, which allows over 25 million borrowers to qualify.
• 44% of the total loans in 2022-23 are federal unsubsidized loans, 16% are federal subsidized loans, 15% are nonfederal loans, 14% are grad PLUS loans, and 11% are parent PLUS loans.
• Experts suggest that 8-10% of projected monthly gross income or 20% of discretionary income should go to student loan payments.

Table of Contents

1. Which student loan should you pay off first?
2. What are the best strategies for paying off student loans early?
3. What is the debt snowball method, and is it effective for student loans?
4. How does the debt avalanche method work for student loans?
5. How can loan forgiveness programs impact your decision on which student loan to pay off first?
6. How can deferment and forbearance impact your overall loan balance?
7. How can refinancing affect which student loan to pay off first?
8. What percentage of your income should go towards student loan payments?
9. How can parents support their children’s student loan repayment journey?
10. How can you compare loan offers from different banks?
11. Can further education boost your repayment capabilities?
12. Is your field of study influencing your repayment capability?
13. Can supplemental income strategies accelerate student loan repayment?
14. Should You Invest Rather Than Accelerate Student Loan Repayment?
15. Do Student Loan Tax Deductions Impact Your Repayment Strategy?
16. Can student loans be leveraged to meet essential living expenses?
17. Can student loan repayment strategies impact future financial goals?
18. What role can accredited online education play in optimizing student loan repayment?
19. Does paying off student loans early improve your credit score?
20. When should you seek professional help with student loan repayment?
21. Common Pitfalls to Avoid When Managing Student Loan Repayments
22. Other Things You Should Know About Which Student Loan to Pay Off First

Which student loan should you pay off first?

Crafting a successful student loan repayment plan often hinges on determining which student loan to pay off first. Several strategies can help students make this decision based on their unique financial situation and the nature of the debts they owe. Here are some of the most popular methods:

• Prioritize high-interest loans: Focusing on loans with the highest interest rates (debt avalanche method) can significantly reduce overall interest paid. 
• Build momentum with small wins: Paying off the smallest loan first (debt snowball method) can provide psychological motivation. 
• Consider forgiveness potential: If eligible for loan forgiveness programs, prioritize non-qualifying loans. 
• Mitigate interest rate risks: For variable interest rate loans, consider paying them off sooner to protect against potential rate increases. 
• Align with financial goals: Short-term financial objectives might influence which loan to address first to free up cash flow.

According to 2024 data from the Education Data Initiative, the typical outstanding federal student loan debt is $37,853. If we include private loans, the average debt per student reaches around $40,681. 

So, how much does a bachelors degree cost? The loan should cover one's education cost.

What are the best strategies for paying off student loans early?

Paying off student loans early can be advantageous for many. Still, borrowers should consider individual financial situations, other debts, emergency savings, and long-term financial goals before deciding if it is the best strategy, especially when deciding which student loan to pay off first. 

Here are several strategies that can help borrowers pay student loan dues early:

• Prioritize high-interest debt: Focus on loans with the highest interest rates to minimize overall interest paid. 
• Make extra payments: Even small additional contributions can significantly reduce the loan term. 
• Increase payment frequency: Switching to biweekly payments effectively adds an extra monthly payment each year. 
• Refinance wisely: Explore refinancing options for lower interest rates, but weigh the potential loss of federal benefits. 
• Capitalize on windfalls: Apply unexpected income like tax refunds or bonuses directly to the loan. 
• Boost income: Consider side hustles or freelance work to generate extra funds for loan payments. 
• Cut unnecessary expenses: Reduce non-essential spending to allocate more money towards debt repayment. 
• Automated payments: Switch on automatic payments for payment gateways and platforms to ensure dues are always settled on time. Prompt payments can potentially qualify borrowers for interest rate discounts. 
• Explore forgiveness programs: Research programs like Public Service Loan Forgiveness to potentially reduce the loan balance.

Strategizing one's finances should ideally be part of college planning for high school students so that they would be prepared for every major financial obligation. 

Applying any or a combination of these strategies has become a necessity these days when exploring which student loan to pay off first. Even students recognize that student loan debt is becoming a problem, with 37% of postgraduate students thinking that student loan debt is now a national crisis. The chart below provide details on these sentiments.

What is the debt snowball method, and is it effective for student loans?

The debt snowball method involves systematically paying off debts from smallest to largest balance, while consistently making minimum payments on all other obligations. This approach can provide psychological benefits as borrowers quickly eliminate smaller debts, boosting motivation.

However, the debt snowball method may not be the most financially advantageous strategy to figuring out which student loan to pay off first. By prioritizing balance size over interest rate, borrowers risk paying more interest over time. As a result, individuals should carefully consider the potential trade-off between psychological benefits and financial implications when deciding whether to employ this method for their student loans.

How does the debt avalanche method work for student loans?

The debt avalanche method prioritizes the repayment of high-interest debt. By allocating extra funds towards the loan with the highest interest rate while making minimum payments on others, individuals can significantly reduce the overall interest paid. This strategic approach can accelerate debt repayment and yield substantial long-term savings. For example, paying off a $10,000 loan at 7% interest in five years rather than ten can result in savings of over $2,000 in interest.

However, successful implementation of the debt avalanche method requires discipline and financial stability. Consistent allocation of additional funds to the highest-interest debt is crucial. Unexpected financial challenges or fluctuations in income can hinder progress. Consequently, individuals must carefully assess their financial situation before adopting this strategy.

The debt avalanche method is generally more effective than the debt snowball method for minimizing interest payments and overall costs, as it focuses on paying off debts with the highest interest rates first. This approach can save more money in the long run and reduce the total repayment period.

However, the debt snowball method, which targets the smallest debts first, can be more effective for maintaining motivation and providing psychological satisfaction through quick wins. Ultimately, the best method depends on whether an individual prioritizes financial savings or emotional encouragement.

How can loan forgiveness programs impact your decision on which student loan to pay off first?

The availability of loan forgiveness programs like Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness can significantly influence a borrower's repayment strategy. After all, the measure alters the specifics of federal loans. 

To maximize the benefits of these programs, borrowers should keep the following in mind when determining which student loan to pay off first:

• Prioritize non-forgivable debt: Focusing initial payments on loans ineligible for forgiveness can increase the overall amount of debt eliminated through forgiveness. 
• Optimize cash flow: Lower payments on potentially forgivable loans free up funds for addressing other debts or financial goals. 
• Understand program details: Borrowers should thoroughly familiarize themselves with the program terms and eligibility requirements to make informed decisions.

Pursuing loan forgiveness has become a more viable option starting in 2024, with the Biden administration addressing the growing problem of student loan debt. The US government aims to cancel student debt with its planned measure, which allows over 25 million borrowers to qualify.  

How can deferment and forbearance impact your overall loan balance?

Deferment and forbearance are temporary pauses on student loan payments. While they might seem a relief, they can significantly impact one's overall loan balance.  

Deferment

• Subsidized federal loans: Interest doesn't accrue during deferment, so the loan balance remains the same.
• Unsubsidized federal loans: Interest continues to accrue during deferment, increasing the loan balance.
• Private loans: Interest typically accrues during deferment, increasing the loan balance.  

Forbearance

• All loan types: Interest typically accrues during forbearance, increasing the loan balance.  

Factors to Consider about Deferment and Forbearance

• Interest capitalization: When a borrower's deferment or forbearance period ends, the accrued interest is often added to the principal balance, increasing the loan amount and future payments. 
• Extended repayment: Because the borrower is not paying down the principal during deferment or forbearance, the loan repayment term is extended. 
• Financial hardship: While these options can provide temporary relief, it is important to use them judiciously as they can lead to long-term financial challenges.

Although forbearance and deferment can offer short-term relief, they generally lead to a larger loan balance because of the accrued interest. When strategizing which student loan to pay off first, borrowers can explore other options, such as loan consolidation or income-driven repayment plans, if their terms are more workable.

How can refinancing affect which student loan to pay off first?

Refinancing can change a borrower’s repayment strategy by altering interest rates, loan terms, and payment structures. It is important for the borrower to carefully review the new terms to determine the most effective way to manage and pay off their refinanced loan.

Here are some of the ways refinancing can affect a borrower's repayment strategy, especially when determining which student loan to pay off first:

• New Rate: When a borrower refinances, they obtain a new interest rate based on their creditworthiness and current market conditions. This rate can be lower or higher than their original loan rates. A lower rate often makes prioritizing the refinanced loan advantageous, especially if previous loans had higher interest rates. 
• Single Rate: Refinancing combines multiple loans into one with a unified interest rate. This simplifies repayment management by eliminating the need to track various rates. If the new rate is higher than previous rates, focusing extra payments on the refinanced loan can be beneficial. 
• Shorter Term: Going for a shorter loan term comes with larger monthly payments but decreases overall interest. To minimize higher payments, borrowers may accelerate repayment. 
• Longer Term: Extending the loan term lowers monthly payments but increases total interest. This might necessitate reassessing the repayment strategy, potentially prioritizing other high-interest debts. 
• Federal vs. Private: Refinancing federal loans into private loans forfeits federal benefits like income-driven repayment and forgiveness programs. If the new rate is higher or benefits are significant, accelerating repayment on the refinanced loan could be necessary. 
• Single Payment: Refinancing consolidates multiple loans into one payment, streamlining management. This allows borrowers to direct extra payments towards the single balance, potentially speeding up repayment. 
• Consolidation Effect: Refinancing alters the total loan balance, influencing repayment priorities. Significant balance changes might require reassessing which loans to prioritize based on the new terms.

Students are advised to learn how their loans work before considering refinancing, especially when tapping private lenders to refinance federal loans, which may result in the loss of some benefits.

So, exactly what types of loans do student borrowers have? According to a 2023 report by College Board, 44% of the total loans in 2022-23 are federal unsubsidized loans. Check the chart below for more details.

What percentage of your income should go towards student loan payments?

Experts suggest borrowing no more than 8-10% of projected monthly gross income or 20% of discretionary income. Ideally, total student loan debt should not exceed the expected starting salary.

Calculate net income after taxes and deductions to effectively manage student loan payments. While the 50/30/20 budgeting rule (needs/wants/savings) is a common starting point, adjustments may be necessary for those with significant student debt. Consider allocating 60% to fixed expenses, including student loans, 20% to variable expenses, and 20% to savings and debt repayment. 

For borrowers struggling with high payments, income-driven repayment plans or refinancing might provide relief. To avoid excessive debt, research potential career earnings before borrowing.

How can parents support their children’s student loan repayment journey?

Parents play a pivotal role in easing the burden of student loans for their children, even when their own financial situation isn’t ideal. Providing financial literacy, offering emotional support, and exploring alternative financing options can significantly impact how students manage their loan repayments.

Parents struggling with bad credit may think their options are limited, but there are financing solutions they can explore. For instance, understanding customizable solutions for student loans when parents have bad credit allows families to find manageable and efficient plans tailored to their circumstances. This effort can foster better financial resilience for both parents and their children.

Beyond advising on repayment strategies like the debt avalanche or snowball methods, parents can educate their children on the long-term consequences of loan choices. For those eligible, discussing options such as loan forgiveness programs or refinancing strategies can also be beneficial. Another smart practice is to encourage the early establishment of an emergency fund, so unexpected costs won’t derail repayment goals.

By combining financial education and strategic planning, parents can guide their children toward achieving student loan repayment milestones, even amid challenging circumstances.

How can you compare loan offers from different banks?

When evaluating lender options, focus on key factors such as interest rates, repayment terms, fees, and customer service quality. Analyzing these aspects enables borrowers to select loan products that effectively balance cost savings with flexibility. Comprehensive comparisons can reveal nuances—like penalty fees for early repayment—that may otherwise be overlooked. Leveraging updated resources that list what banks offer student loans further streamlines the decision-making process. Detailed comparisons not only highlight competitive offers but also ensure that the selected financing option aligns with both immediate financial needs and future repayment goals.

Can further education boost your repayment capabilities?

Pursuing an advanced degree may enhance long-term earning potential and provide access to specialized career paths. For instance, targeted programs like online PhD programs are designed to deliver efficient pathways to higher qualifications, which can translate into increased income and improved financial stability. Evaluating the potential return on investment—including program costs, duration, and market demand—is essential before committing, as these factors directly influence the feasibility of accelerated student loan repayment.

Is your field of study influencing your repayment capability?

Graduates who select degree programs aligned with market demand and lucrative career paths often experience improved financial outcomes, which can accelerate student loan repayment. Choosing a field with higher earning potential and job stability, including opportunities available through schooling for remote jobs, may provide a more robust platform for managing debt. Evaluating long-term industry trends and evaluating potential salary trajectories become essential for optimizing repayment strategies.

Can supplemental income strategies accelerate student loan repayment?

Increasing supplemental income can allow borrowers to allocate additional resources toward principal reduction, ultimately shortening the repayment period and reducing overall interest costs. Exploring avenues such as part-time work, freelance opportunities, or targeted skill enhancement can generate extra cash flow. For instance, consider obtaining easy certifications that pay well to boost earning potential without a long-term career change. Analyzing the viability of these strategies alongside personal and professional commitments is essential to ensure that the additional efforts translate into sustainable financial benefits.

Should You Invest Rather Than Accelerate Student Loan Repayment?

Evaluating your overall financial strategy requires balancing debt repayment with potential investment gains. When interest rates on student loans are low, redirecting extra funds towards diversified investments could yield higher long-term returns. A careful comparison between the interest saved by early repayment and the potential earnings from investments is essential. Consider factors such as risk tolerance, market conditions, and personal financial goals in your analysis. For those looking to enhance their earning potential through further education, exploring online college courses with financial aid may present an alternative path to financial growth. Consulting with a financial advisor can help determine which strategy aligns best with your particular circumstances.

Do Student Loan Tax Deductions Impact Your Repayment Strategy?

Tax considerations can play a vital role in optimizing repayment strategies. Borrowers may be eligible to deduct a portion of their student loan interest, which can lower taxable income and influence overall financial planning. However, repaying loans early might reduce the accumulated interest, thereby limiting available deductions. Evaluating this trade-off is essential when aligning repayment priorities with long-term tax benefits. For example, prospective students assessing educational paths can consider factors such as how much does veterinary school cost to understand broader fiscal implications. Engaging with a tax professional can further ensure that personalized repayment strategies effectively incorporate evolving tax regulations and maximize potential advantages.

Can student loans be leveraged to meet essential living expenses?

Although student loans are primarily intended to cover educational costs, some borrowers evaluate whether reallocating funds can ease short-term financial pressures. This analysis should factor in the potential trade-offs of diverting resources from academic investments toward living expenses. Assess if shifting focus—particularly during periods of unexpected financial stress—aligns with long-term repayment objectives and does not jeopardize eligibility for benefits or favorable terms. For example, reading our article Can financial aid be used for rent? helps reveal supplementary strategies to balance essential living costs with dedicated loan repayment.

Can student loan repayment strategies impact future financial goals?

Evaluating long-term financial objectives alongside student loan repayment plans is essential. Borrowers should assess how choices like accelerated payments or income-driven strategies can affect goals such as homeownership, retirement savings, or building an emergency fund. Integrating repayment strategies with broader financial planning can help ensure that managing student debt does not hinder future investments or credit opportunities. For instance, considering educational options from the cheapest online accredited college may further reduce overall expenses and contribute to enhanced financial stability.

What role can accredited online education play in optimizing student loan repayment?

Enrolling in accredited online programs can minimize educational expenses and lower future indebtedness. By opting for institutions that offer streamlined admissions processes, such as a college online with no application fee, students can reduce upfront costs and graduate with a more manageable financial burden. Additionally, flexible online learning platforms enable students to balance work and study, potentially increasing income while decreasing reliance on loans. This strategic educational approach supports sustainable repayment strategies and long-term financial stability.

Does paying off student loans early improve your credit score?

Paying off student loans early can positively influence a borrower's credit score in the long run since a favorable credit history is being established. The impact of early payments varies based on several factors, especially when identifying which student loan to pay off first:

• Credit Utilization: As installment loans, student loans contribute to a borrower's debt load. Paying them off early reduces this debt, potentially improving credit utilization (debt-to-available credit ratio), a key factor in credit scores. 
• Credit History Length: While closing a student loan account might temporarily shorten credit history, this impact is often minimal if the borrower maintains other active credit accounts. 
• Payment History: Consistent on-time payments, including those on student loans, positively impact credit scores. Early payoff demonstrates responsible credit management. 
• Debt-to-Income Ratio: Reducing overall debt by paying off student loans can improve the debt-to-income ratio, a crucial factor for lenders. This strengthens creditworthiness.

When should you seek professional help with student loan repayment?

A borrower may benefit from professional guidance when managing student loan debt and figuring out which student loan to pay off first, especially when one's financial situation necessitates complex solutions. Consulting with professionals often leads to ideal payment solutions tailored to a borrower's needs and available resources.   

Here are scenarios that may warrant seeking expert assistance:

• Overwhelming Debt: If student loan debt feels unmanageable and minimum payments are challenging, a financial professional can create a sustainable repayment plan. 
• Repayment Plan Uncertainty: With various repayment options, forgiveness programs, and consolidation possibilities, understanding available choices can be complex. Expert advice can clarify options and recommend suitable paths. 
• Payment Difficulties: Consistent struggles to meet loan payments require professional help exploring income-driven repayment plans, forbearance, or deferment. 
• Loan Default or Delinquency: If a loan is in default or delinquency, professional intervention is crucial to avoid severe consequences and develop a recovery plan. 
• Complex Financial Situation: Individuals facing multiple debts, low income, or other financial challenges can benefit from comprehensive financial advice and personalized repayment strategies. 
• Accelerated Repayment Goals: Borrowers aiming to rapidly repay student loans may seek professional guidance to optimize savings and minimize interest costs.

Having a sound repayment strategy and the option to consult with finance professionals can considerably reduce the financial burden set by student loans on debtors. If more borrowers strategize their payments well, the total student loans hounding Americans can potentially decrease.  

According to 2024 data from the Board of Governors of the Federal Reserve System, the total student loans in the United States, as of the first quarter of 2024, is $1.753 trillion, representing a considerable decrease year-over-year. The chart below provides further details on the YOY figures of total US student loan debt.

Common Pitfalls to Avoid When Managing Student Loan Repayments

Managing student loan repayments can be overwhelming, and missteps can lead to unnecessary financial strain. Being aware of common pitfalls can help borrowers devise a more effective repayment strategy and avoid costly mistakes.

1. Ignoring High-Interest Debt: One of the most significant errors is neglecting high-interest loans while focusing on smaller amounts. The additional interest costs can quickly compound, increasing the overall repayment amount. Borrowers should evaluate whether strategies like the debt avalanche method may better serve their financial goals.
2. Delaying Payments Without a Plan: While deferment and forbearance offer temporary relief, they often lead to higher balances due to accrued interest. Consider alternative solutions like enrolling in an income-driven repayment plan or refinancing, especially if private loans are part of your portfolio. Researching the best private student loans can provide clarity on options available for more favorable terms.
3. Overcommitting Financial Resources: Allocating too much of your income toward student loan payments at the expense of emergency savings or retirement contributions can derail long-term financial success. Establishing a balanced budget and maintaining financial flexibility is critical.
4. Disregarding Loan Forgiveness Opportunities: Many borrowers overlook loan forgiveness programs that could significantly reduce their debt burden. Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness offer tailored benefits for qualifying individuals, but strict eligibility criteria must be met.
5. Rushing to Refinance Federal Loans: While refinancing can lower interest rates, transferring federal loans to private lenders results in the forfeiture of benefits such as income-driven repayment plans and potential loan forgiveness. Borrowers should weigh the pros and cons carefully before refinancing.

By avoiding these pitfalls, borrowers can navigate their repayment journeys more strategically and work toward financial freedom. Developing a thorough understanding of repayment options and proactively planning each step will help ensure better outcomes.

Here's What Graduates Have to Say About Paying Off Student Loans

"I was drowning in student loan debt until I created a clear repayment plan. Prioritizing the smallest balance first gave me quick wins, which motivated me to keep going. Seeing those loans disappear one by one has been incredibly empowering." - Riley

"Focusing on my highest-interest loans first allowed me to save thousands in interest over the life of my student debt. By prioritizing those loans, I was able to become debt-free 3 years earlier than planned. The peace of mind and financial freedom I now have is priceless." - Reid

"Working with a financial advisor to analyze my student loan interest rates and balances was a game-changer. They helped me create a customized repayment plan that optimized my payments for maximum savings. I'm now on track to be debt-free 5 years ahead of schedule and have more financial flexibility to achieve my goals." - Samantha

Key Findings

• The total student loans in the United States, as of the first quarter of 2024, is $1.753 trillion.
• The 50/30/20 budgeting rule (needs/wants/savings) is a common starting point when determining the income percentage that should go to student loan payments.
• Although forbearance and deferment can offer short-term relief, they generally lead to a larger loan balance because of the accrued interest.
• 37% of postgraduate students, 35% of four-year degree students, 31% of two-year degree students and those with some college experience, and 24% of high school graduates believe the current level of student loan debt is a national crisis.
• The average debt per student is around $40,681.

Other Things You Should Know About Which Student Loan to Pay Off First

How do I choose which loan to pay off first?

Borrowers typically prioritize loan repayment based on interest rates or loan balances. Prioritizing high-interest loans often minimizes overall interest paid, while focusing on the smallest loan balance can provide a sense of accomplishment and momentum. 

Should you pay off student loan interest or principal first?

When making extra payments on student loans, borrowers should prioritize paying down the principal first rather than the interest. This approach reduces the overall loan balance more quickly, which in turn decreases the amount of interest that accrues over time, ultimately leading to less total interest paid and a faster path to being debt-free.

Is it better to pay off student loans all at once?

Paying off student loans all at once can be advantageous if a borrower has the financial means, as it eliminates the debt immediately and saves on future interest payments. However, for most borrowers, it may be more practical to follow a structured repayment plan that balances loan payments with other financial goals and obligations.

References: 

1. Betterton, R. (2024, July 29). Americans have $1.7 trillion in student loan debt. How do they feel about it? Bankrate
2. Board of Governors of the Federal Reserve System (2024, July 8). Consumer Credit - G.19. Board of Governors of the Federal Reserve System
3. Hanson, M. (2024, July 15). Student loan debt statistics. Education Data Initiative
4. Nesbit, J. (2023, August 30). Here's how much of your income should go to student loans each month. Money