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With Lots of Student Loans, Which Debts Should You Pay First?

Congrats, grad: Your crazy student loans are coming due! How do you know which student loans to pay first? Attorney Natalie Bacon graduated from law school with $208K in student debt and — not surprisingly — has some thoughts on the subject.

Which student loans should you pay off first?

I graduated from law school in 2011 with a whopping $208,000 of student loan debt. To make matters worse, the job market was horrible for new lawyers.

It would have been easy to sulk, complain, and make excuses. But, I refused to do that. A negative attitude wasn’t going to help me get out of debt. As part of my decision to take control of my financial future, I decided to tackle my student loan debt head on. In order to do that, I needed to know the smartest way to pay off my loans. Here’s what I learned.


In order to know which loans to repay first, you need to know the details about all of your student loans. (If you have many, this can take some time!)

You should know:

  • Whether you have private and/or federal loans.
  • Whether you have a cosigner on any of your loans.
  • Whether you have fixed or variable interest rates on your loans.
  • Whether you have subsidized or unsubsidized loans.
  • What the interest rates are on your loans.


After your deferment / grace period ends, you’ll need to select a repayment plan for your student loans.

  • For private loans, you may select a standard or extended repayment plan (10 or 25 year plan).
  • For federal loans, you may select a standard, graduated, extended, income contingent, income sensitive, or income based plan. Federal loans are also eligible for the Federal Loan Forgiveness program (where federal loans are forgiven after 10 years of working a qualifying public service job).


After you’re on a repayment plan and making regular minimum payments, you can determine which loans to pay off faster and in what order.

Note that you should also have other savings established — such as a 6-12 month emergency fund — prior to paying down your student loans faster. But once you’re ready, here’s what you should do.

1. First, pay off private loans.

Private loans are the most dangerous student loans for a variety of reasons. Often, they have variable interest rates, require a cosigner, may not be consolidated, are ineligible for deferment or forbearance, and have limited repayment options.

If you die before repayment in full, the loans becomes due (which is why, if you have a cosigner, you should have life insurance to cover the amount of debt you have in private loans). For these reasons, private student loans should be your priority.

At this stage you should also consider student loan refinancing, which could be a great way to lower your interest rate and possibly reduce your total monthly student loan payments. Check out Earnest for some low-rate refinancing options. Another company to consider here is Credible, which will scour many of the lenders available and present you with the best refinancing loan for your needs.

2. Second, pay off loans with a cosigner.

Your cosigner did you a favor by helping you get loans you otherwise couldn’t have, and she trusted you to repay them. You should pay off loans with cosigners to repay the favor, maintain a good relationship, and keep your word with your cosigners. Anything could happen to you, and you don’t want someone else to be on the hook for your loans if you’re unable to pay.

3. Third, pay off loans with variable interest rates.

A variable interest rate on a student loans means that the interest rate changes over time based on an underlying benchmark rate or index. The risk associated with variable interest rates is that the rate can go up, and you’ll have to pay more. Typically, these will be your private loans (except for some federal loans disbursed between 1998 and 2006).

4. Fourth, pay off unsubsidized loans with the highest fixed interest rates.

An unsubsidized loan is a loan that accrues interest from the disbursement date. When an unsubsidized loan is accruing interest, the amount of interest is added to the principal, and you’ll have to pay interest on the increased principal amount (this is called capitalization). Since high interest rate loans will have grown the most by the time you’re in repayment, these loans should be a priority to payoff.

A fixed interest rate means that the interest rate is set and will not change over the life of the loan. With fixed interest rate loans, there is no risk of the rate increasing, making them less risky than variable interest rate loans. Most Federal student loans have fixed interest rates that are set by federal law. The higher the interest rate, the faster the interest on the loan grows, and the more money you owe. Therefore, you want to payoff high interest rate loans quickly.

5. Fifth, pay off subsidized loans with high interest rates.

A subsidized loan is a loan that the Federal Government pays the interest on while it is deferred, in grace period, and during some other times. Thus, subsidized loans are not accruing interest while you’re in school. Your interest on subsidized loans should be zero when you begin repayment. However, you’ll want to pay down the principal of subsidized loans with high interest rates to avoid future growth.

6. Sixth, pay off unsubsidized loans with low interest rates.

Again, an unsubsidized loan means that the interest accrues from the time of disbursement. However, if the interest rate is very low, you won’t have much capitalization by the time you’re in repayment. For this reason, pay unsubsidized, low interest, loans after subsidized high interest loans. (Note: an exception to this rule would be if your unsubsidized, low interest, loans have been in deferment for so long that the capitalization is high. In this case, you’d want to pay down the unsubsidized, low interest, loans prior to the subsidized high interest loans.)

7. Finally, pay off subsidized loans with low interest rates.

Subsidized loans with low interest rates are the best types of student loans. You want to put extra money toward these last because the government will have paid for the interest while you were in school, and the interest that accrues during repayment will be the lowest out of all your loans.


Regardless of which loans you choose to put more money toward, remember to put the additional amount on the principal of the loans, not the interest. Each lender varies as to how you’re able to pay more than the minimum. To make sure you are paying off the principal, contact your lender to find out how it accepts payments toward principal. For example, a lender may require additional payments be made over the phone, or it may require a letter stating that the monthly payment is paid and the additional money should go toward principal. Sallie Mae only requires that you enter the additional amount in the “payment amount” box online. So, it depends on your lender. Make sure to find out because you do not want to put extra money on the interest. By putting additional money on the principal, you lower the amount of future interest.

To recap, I’ll use my loans as an example. I committed to the standard repayment plan (with a plan to pay off my loans in 10 years), and began putting additional money on my private loans (both of which my mom was a cosigner and had variable interest rates). After paying off my private loans, I put extra money on a high interest, unsubsidized loan (that had accrued thousands of dollars in interest throughout law school). After those are paid in full, I will put additional money toward my loans with lower fixed interest rates, both of which are subsidized.


Hopefully, you are in a position to pay off your student loans early. However, if you have to choose which debt to pay because you can’t afford all your minimum payments, pay your student loans first (over credit card and medical debt). Student loan debt is arguably the most dangerous type of debt because it is usually not dischargeable in bankruptcy. This means that if you claim bankruptcy, your credit card debt and medical debt will be discharged, but your student loan debt will not (i.e., after bankruptcy, you still owe your student loan debt).

Student loan debt should not discourage you. Your past is your past. It’s an opportunity to learn how to overcome debt and face today’s challenges. I’ve taken my student loan debt as a learning experience on how to get rid of debt quickly and build wealth (something I knew nothing about prior to graduating from law school). Now, I can’t get enough of financial planning; I’ve even started blogging about it. Intentional living, believing in myself, and adapting to changing times is what success means to me. There are no excuses.

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About Natalie Bacon

Natalie Bacon is the blogger behind Financegirl, where she writes about finance and intentional living for young professional women. Natalie is a former corporate attorney who traded in her job to pursue a career in financial planning, freelance writing, and blogging. You can follow Natalie on social media on Facebook, Instagram, Twitter, and Pinterest.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 36.

  1. Pauline says:

    As a former banker I am impressed with this very well written and informative article/advice.
    Congratulations and I do not doubt that you have a very successful career ahead of you.

  2. Lala says:


    I am currently paying my mother’s parent plus loans that she took out for my undergraduate degree – there are three in total and they are very large amounts. I am now graduated and have been making the monthly payments for the past two years..each of these payments was only going to the interest because the amount of interest that accrues each month for all three loans is literally the amount that was due each month, which is a very high amount. I also have my own student loans that I’m working on paying off so there is no way for me to pay more than what i have been.

    My mother just took out more loans for my sister’s undergraduate program, which has caused all of her PP loans to go into deferment, therefore, no monthly payment is due. However, I am still making payments each month because there is about $1,000 dollars of interest that I have not paid. My mother refuses to call the loan company to discuss any other options and when I call them, they refuse to discuss any options with me since the loans are technically not in my name, which is understandable.

    Since there is no payment due, I’m technically making “excess” payments and I understand that I should be tackling the loan with the highest interest rate. All of these posts are emphasizing that the excess payments should be put towards the principle balance, not the interest. So, here is my question: Since there still is $1,000 dollars of interest that hasn’t been paid, should i still be advising the loan company to apply my payments only to the principle? I am confused because i still have that interest.

    Any advice would be greatly appreciated!

  3. Colin says:

    I have been out of school about five years and have about $30,000 left in student loan debt and am considering enrolling in law school, which will mean a lot more debt, but hopefully a viable means of paying it off after I graduate. My question revolves around federal subsidized loans. I was thinking about refinancing my current loans into a lower rate, but I currently have about $13000 in federal subsidized loans and I have been told if I a thinking of going back to school soon that I should keep those as is because they would go into “student” status and not accrue interest while I am in law school. Is it true that if I were to go back to law school that the subsidized loans would go into “student” status and that interest would be paid by the government for the 3-4 years that I am in school, or is this for undergraduates only?

  4. Should I Pay Off My Student Loans Or Save Money – Save money, Make money says:

    […] With Lots of Student Loans, Which … – Congrats, grad: Your crazy student loans are coming due! How do you know which student loans to pay first? Attorney Natalie Bacon graduated from law school … […]

  5. Natalie @ Financegirl says:

    Great comment, Erik!

    Regarding your second point, if you removed the cosigner, then I absolutely agree (if you don’t have a cosigner, then the priority of the cosigner is null here). Regarding private loans, I have to say that my private loans had lower interest rates than my federal loans, but because my cosigner was not be removed, my interest rates were variable, and in my opinion, it would have been incredibly difficult to include in a bankruptcy had the need arisen, I believed they should be paid off first (and that’s what I did).

    That said, this goes to show that the order in which you pay off your loans can be based, in part, on how comfortable you are with your debt, in addition to your specific loan servicer. Knowing the details about your specific loans will undoubtedly help decipher these things.

  6. Erik T says:

    Hello Natalie,

    Thank you for the article. I agree completely on A, B, and C!

    However, I have to disagree with you on several points:
    o First, pay off private loans – Private loan interest rates may actually be lower than Federal loans, in fact, all of mine are. Private loans can be included in a bankruptcy proceeding, while federal loans cannot, offering more flexibility if in a bankruptcy situation. I do like the comment about life insurance for private loans though!
    o Second, pay off loans with a Co-signor – Many, if not all, private lenders allow a co-signor to be removed one year after repayment begins, with loans in good standing. Paying off a loan faster that you have a co-signor on could be a poor decision if that loan has a low interest rate.
    o Unsubsidized and Subsidized loans – After graduation, subsidized and unsubsidized loans are essentially the same (the government is no longer paying the interest on the subsidized loan), so they should be grouped together – paying off the highest interest rates first.

    • Jacob Bailey says:


      While what you say is true after graduation unsubsidized and subsidized should be clumped together, paying the highest interest rates first, BEFORE graduation you should be paying off the high interest unsubsidized loan first in my opinion (or at least the interest building up on it), because you don’t want that accrued interest to capitalize when you enter a repayment plan. This article must be read as if you are planning to do prepayments in college or during a deferment/grace period.

      Good luck!

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