It’s graduation season – congratulations graduate! You’ve graduated and now it’s time to make a plan to get that student debt paid off. It can seem a little overwhelming, but if you carefully consider your options, prioritize properly and make a plan you can stick to, it will help you out considerably.

Most students graduate with more than one loan debt – and there are a number of things to consider when prioritizing which you should pay off first. You’ll need to compile a list of what types of loans you have, what the balance of each loan is, and of course your current financial situation will help to determine how you should tackle the debt.

Here are a few things you need to consider when planning to pay off student loans:

  • Does refinancing your loans make sense? Refinancing could help you save money by lowering your interest rates and it also give you just one loan payment to manage. Keep in mind that if you refinance a federal loan into a private loan, you lose access to federal protections like forbearance and income-driven repayment plans (see the resources link at the bottom of this article for more information). So, check those details before you make that final decision.
  • Do you have other large debts? In some cases, paying off student loans first may not make financial sense. Student loans often have lower interest rates than other debts (like credit cards) and you may be better off taking care of those first.
  • Protect yourself first. Make sure you’ve saved up an emergency fund before spending extra money to pay off debt. If you have unexpected expenses, you’ll need to make sure you can cover those.

Okay, so you’ve decided that paying off your student debt is top priority! So, how do you prioritize which loans/debt to pay off first? If you’re the type of individual that needs instant gratification; you may want to pay off the smallest balance first. Paying off the smallest balance doesn’t always save the most money, but it does help you get some momentum and motivation going. The other strategy to paying off debt is to focus on the loan that has the highest interest rate. Neither one of these options is right or wrong, so choose the one that best suits you and your situation and then be consistent to attain the ultimate goal of getting the loans paid off.

Before determining your final payoff strategy, be sure you have taken a full inventory of your loans so you have a solid knowledge of where you stand. Write down every detail of each loan including:

  • The lender
  • The Loan Balance
  • The interest rate for each loan
  • Minimum monthly payment amount
  • The type of loan

Another factor you need to note is whether your loans are subsidized or unsubsidized. A direct subsidized loan starts accruing interest six-months after graduation or when you leave school (this is a grace period and the Department of Education pays the interest on the loan while you’re in school). A direct unsubsidized loan starts accruing interest from the time the loan is funded. If you don’t make interest payments while you’re in school, the interest accrued while you are in school is added to your loan principal – which means you ultimately pay interest on the interest. So, because they start accruing interest from the start you should generally pay off any direct unsubsidized loans before paying off subsidized loans.

Now that you’ve assessed your situation and all of the debt/types of loans that you have, make sure you select a strategy that works best for you and your income situation. Here are a few things you should consider when prioritizing and choosing a strategy:

Make paying off private student loans a top priority. If you have both federal and private student loans, be sure to check the interest rates. Private loans often have higher interest rates, so tackle them first for the most money savings in the long run. Don’t neglect to make minimum payments on your other loans, but put any extra money you may have towards paying down private loans. Federal student loans often come with some protections that private loans do not. Federal loans often offer benefits like loan deferment, and some loan forgiveness programs. Private lenders can be less forgiving when it comes to hardships, so get rid of this debt first. You should certainly entertain the possibility of refinancing private loans if you can get a lower interest rate which could help you pay those loans off quicker.

Pay off loans with the highest interest rates to get the most savings in the long run. Federal student loans typically have fixed rates compared to private lenders who may set interest rates based on your credit and other factors, and those rates are often higher. By paying off loans with the highest interest rates you reduce the total amount of interest you will be paying.

Paying off the smallest loan balance first is another great option. Make minimum monthly loan payments on all of your loans and put any extra money you have toward the loan with the smallest balance. Once that loan is paid off, take the funds you were paying on that loan and add them to the amount you pay on the next lowest balance loan. This is called a debt snowball; as you continue to pay off loans and roll those payments into paying off the next loan, the amount you have available to pay on the loans builds up to a larger payment, ultimately paying off a loan quicker.

Here are a few useful resource links with information regarding Federal Student Loan Aid:

Finally, do a little bit more homework and calculate your total interest on your loans, use an interest calculator like Student Loan Calculator. This will tell you how much interest you’ll pay and help you develop a solid plan to pay your loans off sooner, or find out what your payments and overall interest would be if you refinanced your loans at a lower interest rate.