My Situation:

  • About $36k USD in graduate student loans.

  • There are 4 different federal loans in play, each with a fixed rate of 6.8%.

    • $12k w/ ~$1.2k in unpaid interest

    • $10k w/ ~$1k in unpaid interest

    • $8k w/ no unpaid interest (all principal)

    • $6k w/ no unpaid interest (all principal)

  • All loans are in repayment.

  • Some loans are subsidized, some are not. This no longer matters now that they're all in repayment though, right?

Is there a most cost efficient way to pay these loans off?

Should the interest be ignored for now on the ones that have $1k in unpaid interest for the time being, because payments to the other two loans will will go directly to principal (minus the monthly compounded interest of course)?

On the surface, I would assume that since they're all the same interest rate, it doesn't really matter, but I'm not sure how the accrued interest would factor in. I'm not interested in psychological wins like debt snowballing. I'm looking for the route that will have me paying the least.

  • 1
    One remaining difference between subsidized and unsubsidized loans is that if you ever end up having to take an economic hardship deferral on your repayments interest will continue to compound on the unsubsidized loans, while the feds will pay it on the subsidized ones. staffordloan.com/stafford-loan-info/faq/… Jul 25, 2014 at 14:29
  • @DanNeely We've paid these bad-boys off now, but that's great info for future readers that may have a similar question!
    – MDMarra
    Jul 25, 2014 at 14:32
  • this answer may provide some calculation/spreadsheet help for future readers May 9, 2016 at 3:39

2 Answers 2


Assuming the rates are the same, and they will remain the same, and assuming that there is no real difference between the loans. Then by the simplest math it doesn't make difference in the approach to paying the loan.

If the loans worked more like credit cards, where there is a minimum payment of x% of the balance of y$ whichever is greater, and if the goal was to stretch a fixed amount of money over 4 accounts then paying off the smallest balance first makes sense. It allows the minimum payment for that account to be applied to the other accounts.

If they had different rates the higher rate could make the most sense.

That leaves only 2 reasons to pick an unbalanced approach to paying off the loans: psychology and logistics. Getting rid of one loan quickly makes you feel better, even though it doesn't make you any closer to being debt free. If one of the loans is with a separate lender then it cuts down on the amount of transactions in your bank account and email, or snail mail. I have heard horror stories of people who left school unsure of how many loans they had, only to discover they forgot about one until it went to collections.

They key to your question is that the loans are essentially the same, if they weren't then the math becomes more complex because it depends on the rate and balances.

  • Right! Same rate on multiple loans, no difference in how you choose to make extra payments. Aug 24, 2013 at 19:44
  • Ok, that's what I thought as well and makes more sense than the other answers. Thanks!
    – MDMarra
    Aug 24, 2013 at 20:45
  • This answer is wrong. Interest will compound and accrue faster on higher balances. 6.8% of $10,000 is alot more than 6.8% of $500. Assuming you don't pay on the high balance then the pricipal increases.
    – Shawn
    Jul 25, 2014 at 0:27
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    Shawn, your comment makes no sense. Effectively there is one big balance of 36k @ 6.8% interest. It does not make any difference in how you break that down, or pay it off, when comparing compounding effects. At least not beyond some of the factors already discussed here like min payment requirements, subsidized vs unsubsidized, psychological or logistical effects of removing a loan. Compounding 6.8% of $500 principle is the same whether that $500 is on its own, or part of an overall balance of $10,000. You're being confused by the effects of the other $9,500.
    – davmp
    Jan 28, 2016 at 0:18

I realize this thread is long dead, but for future readers of it I think considering this is a school loan the order does actually matter. This assumes you are in a repayment plan where interest does not capitalize (such as IBR etc). In this case you should first pay off the loans with no interest, and the loan with the lowest principal value. This way more of your monthly dollars are going to principal reduction. Eg if you could put an extra $333 towards the loan/month if you payed a loan with outstanding interest it would take 3 months before you started to decrease the principal, whereas if this was directed to the loan with no interest you have decreased your principal by an extra 1000. Then once that loan is payed off it will free up money to pay off the other loans that do have interest. This technique allows you to pay off the accrued interest faster if you wait to pay off that particular loan, than you would have if you started paying it off first. Ultimately you are probably not saving much, but a penny is a penny.

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    Do I understand correctly? You suggest that one pay the zero interest loan ahead of those with a potentially high rate? Feb 17, 2016 at 20:17
  • 2
    Can you show your math here?
    – MDMarra
    Feb 17, 2016 at 20:34
  • here is some math May 9, 2016 at 3:38

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