I currently have federal student loans, and a personal loan I took out for college. Below are my percentages for each. I am wondering which loans I should start paying off first to ultimately not waste any more money in the long run. My federal ones are on grace period until 11/2018. And my personal loan is currently set for pay off in 4 years.

  1. Federal Student Loans (on grace period until 11/2018) Currently as stands. 10 Years $123 a month.

    a. Direct Subsidized $4,500 4.290%

    b. Direct Unsubsidized $1,865.62 4.290%

    c. Direct Subsidized $3,141.69 3.760%

    d. Direct Subsidized $2,267.00 4.450%

    e. Direct Unsubsidized $165.45 4.450%

  2. Personal Loan (around $435 a month for 4 years)

    a. $20,000 3.735%

  • Given that student loans can't be discharged in bankruptcy (not that it matters much in your scenario) and the personal loan has the lowest interest rate, pay that off last. The student loans are all more-or-less equivalent. I expect proper answers will summarize all the different competing advice and pros and cons of each method.
    – Ben Voigt
    May 17, 2018 at 4:34
  • Is loan 1e really only $165.45, or did you forget a digit somewhere?
    – RonJohn
    May 17, 2018 at 4:38
  • I suppose one thing that might make the interest significantly different would be if any of the student loans currently in grace period actually incur zero interest if paid during the grace period, but retroactively calculate interest if the grace period expires. This is very common for store "0% interest until (date)" plans, you'd have to check the terms of each student loan to see if they behave the same.
    – Ben Voigt
    May 17, 2018 at 5:12
  • 1
    Federal subsidized loans do not accrue interest while in school or during the 6-month grace period, unsubsidized do.
    – Hart CO
    May 17, 2018 at 14:38
  • If HartCO is correct, breaking out the unsubsidized loans as "accuring interest during grace period" from the subsidized ones may help determine a better payoff order
    – Freiheit
    May 17, 2018 at 15:56

6 Answers 6


I'm going to assume by now you are familiar with the two most common methods, Avalanche (highest rate first) and Snowball (lowest amount first). Avalanche should always be mathematically the correct answer, so that's what I typically recommend. Without running the numbers I would guess that the difference in your case will be minimal. There is one advantage of debt snowball that I don't hear mentioned very often though, and that is that your minimum payments are decreasing. This means that after at least one loan is paid off, if you ever have an emergency come up that depletes your emergency fund and then some, in this really bad month you could at least have the option of pausing the snowball and making the smaller minimum payments. This option is not guaranteed to be available with Avalanche.

  • In the states, you can typically freeze your student loan payments for a while in some way shape or form going through a government backed loan provider (the private ones aren't regulated similarly). Knowing this, consider that with each payment on any loan, money is lost on interest. Wouldn't snowball (I can finally put a term to it) make more sense almost always for student loans in the US? (Assuming you are planning for the ability to pay off, and don't just have the money in your bank account already)
    – RandomUs1r
    May 24, 2018 at 23:03
  • @RandomUs1r - good point about student loan forbearance which coincides with my point about pausing the snowball during hardship. If this were a big concern you could re-order your snowball by putting student loans at the end. But note that you still accrue interest during forbearance. Only during special interest free deferments do you not collect interest. But the reality is, if someone is considering a debt snowball, the need to potentially pause it due to hardship really ought to be considered extremely unlikely.
    – TTT
    May 25, 2018 at 3:02
  • And, someone who is super-motivated to pay off their debts would hopefully crush either a debt snowball or a debt avalanche, and if so, debt avalanche is the best financial choice.
    – TTT
    May 25, 2018 at 3:05

Some comments:

  1. All the interest rates are close, so there's no obvious choice on that score. That leads me to ask: do you have any CC debt? If so, that is what you need to hit first.
  2. Do you have an Emergency Fund? With debt, a $1,000 fund is a good baseline while you're paying the debt.
  3. Live below your means. (Which doesn't mean "be a miser").
  4. If you can pay extra on individual Student Loans, I'd try and knock off the unsubsidized ones first, since they have the highest rates.
  5. If you can't, hit the $20K personal loan first.
  • definitely pay off the personal loan first. Being in debt to friends or family has high risk of ruining a relationship. You can't say that about owing money to the Feds
    – rocketman
    May 25, 2018 at 22:49

So, there are a few ways to tackle this.

Which you choose generally depends on the kinda financial philosophies you subscribe to.

TL;DR: Who do you trust?

Method #1: By Interest Rate

  • Tackling the higher interest rate loans first is almost always the way to go, as you'll free up more money to pay towards lower interest debts or loans. And faster (source).
  • Interest rates are pretty close across all of the debts you've listed, so you might want to jump to Method #2.

Method #2: By Total

  • The second option is basically 'Debt Snowball: Redux' (source).

  • This method sees you sorting your debts from low to high, and paying off the smallest loans first.

  • The method behind the madness here is that, with these smaller debts falling by the wayside faster, you'll free up more and more cash which you can use to gain momentum as you roll into increasingly higher / larger amounts.

Other Things To Note

  • Is the 'Grace Period' really a grace period, or will the interest be charged retroactively as soon as it ends? If so, get on these. ASAP.

  • If the 'Grace Period' is a true grace period, take this opportunity to pump some serious cash into these debts and wipe them ASAP. The sooner they're gone, the less you'll walk out of the grace period with, the less interest you'll pay.

  • No-brainer, but try and cut costs as much as you can. I know, I know, it's obvious. But maybe you don't need that Spotify subscription? Or the 4K Netflix sub?

  • Deduct repayments from your taxes! No, really. It's important (source).

  • 3
    Note you can deduct the interest you pay on student loans from your taxes. you don't deduct the entire payment May 17, 2018 at 10:14
  • 1
    AFAIK, the subsidized loans do not accrue interest during the grace period, but the unsubsidized loans do (but no payment is required on either).
    – Nosjack
    May 17, 2018 at 14:03

There are debates surrounding the order in which to pay off loans, one is the debt snowball (DS) (smallest to largest) the other is the highest interest first (HIF). Obviously the highest interest first is the most efficient, mathematically. However, the debt snowball method has merit as personal finance is so rooted in behavior, and by extension, psychology. So much so, that often times DSers may outperform HIFers despite mathematical disadvantages.

If your loans were not in deferment, the first choice would be easy pay off 1.e. first. Both methods would agree. However, they are in deferment so you have a choice to make now.

Do you intend to go crazy and pay these off ASAP or keep them around and pay them off when you have extra cash? If the ASAP way, then use the debt snowball. If you don't mind having 32k in debt, then use the HIF method. Do you want to be out of debt in 24 months or are you okay with still having 30k in debt at that time? A good barometer on where you stand is if you are willing to give up your weekends to work a second job. If the answer is yes, then the DS method is right for you.

The one thing that is clear, on 11/1, make loan 1.e. go away.

Also many people have trouble directing extra principle payments to their student loans or even specific loans. You may want to do a few small practice transaction on how to work the interface and how much trouble it is to do what you want.

Edit: As Matt points out in the comments, loan 1.e. may be accruing interest despite being in defferment. If that is the case, pay it off today!

  • 1
    @Matt Pete (and myself, and others) believe that behavior and psychology play a bigger role than interest in these scenarios, and that the snowball method actually builds momentum faster than paying the highest rate. Even so, paying the highest rate probably won't be significantly faster, just save a small amount of interest (probably less than one month's payment). What makes a big difference in the "ASAP" scenario is adding income or cutting expenses and paying as much as possible.
    – D Stanley
    May 17, 2018 at 13:47
  • 2
    @DStanley I understand the behavioral argument and I'm not disputing it. But that changes nothing. The statement I quoted was WRONG. It is NEVER faster to use the snowball method instead of avalanche. At best they work out the same. The statement was, again, Do you intend to go crazy and pay these off ASAP [...] If the ASAP way, then use the debt snowball. No, not true. If you intend to pay your loans off ASAP you use avalanche. Every time. That is the fastest way.
    – Matt
    May 17, 2018 at 14:10
  • 2
    @Matt if the amount paid is the same, then yes, snowball will not be faster. What I've seen is that the psychological boost from knocking out debts (versus chipping away at one massive high-interest debt) encourages one to work harder to knock out the next one. So the payment increases (or at least doesn't decrease) over time, which can get everything paid off fast. We've gotten off track, though.
    – D Stanley
    May 17, 2018 at 14:20
  • 1
    "So much so, that often times DSers may outperform HIFers despite mathematical disadvantages." Would love to see data supporting this claim.
    – Hart CO
    May 17, 2018 at 14:23
  • 2
    @DStanley I was excited, but the studies were all pretty disappointing. I doubt the psychological effect is meaningful when the cohort is limited to people already motivated to pay off their debt and willing to embrace a plan.
    – Hart CO
    May 17, 2018 at 18:51

As these are student loans and some are still in their grace period, I am going to assume you are relatively young starting your first real job without any other major debts (e.g., car or home), reasonable living expenses (e.g., no young children), and no savings.

If that is the cases, given all the loans are relatively small with reasonable interest rates, I would not be in a rush to pay any of them off. I would focus on making sure you have (1) a reasonable emergency fund (maybe 6 months of living expenses in a relatively liquid and conservative investment), (2) are able to fully capture any matching retirement benefits (e.g., a 401k match), and (3) maximize any tax advantaged retirement accounts. Once that is all taken care of and if there is still money left over, I would consider investing the extra money over paying off the loans. This will allow you to save towards a down payment on a home

  1. Avalanche and Snowball agree. "e. Direct Unsubsidized $165.45 4.450%" is both the smallest loan (Snowball) and the highest interest rate (Avalanche). So pay this off first.

  2. Avalanche would pay off "d. Direct Subsidized $2,267.00 4.450%" second while Snowball would pay off "b. Direct Unsubsidized $1,865.62 4.290%". If you aren't paying interest on the subsidized loan yet, then Avalanche would also pay off "b".

  3. Same two possibilities but reversed. Avalanche: "b. Direct Unsubsidized $1,865.62 4.290%"; Snowball: "d. Direct Subsidized $2,267.00 4.450%".

  4. At this point, both methods have paid off the same three loans. Avalanche would pay the highest rate remaining: "a. Direct Subsidized $4,500 4.290%". Snowball would pay the smallest balance remaining: "c. Direct Subsidized $3,141.69 3.760%".

  5. Again, same two possibilities but reversed. Avalanche: "c. Direct Subsidized $3,141.69 3.760%"; Snowball: "a. Direct Subsidized $4,500 4.290%".

  6. In both methods, you would pay off the personal loan last. It has the lowest interest rate (Avalanche last) and the largest balance (Snowball last). And as commented, it is the only loan easily dischargeable in bankruptcy.

I believe (but am not certain) that subsidized loans don't charge interest during the grace period. I believe that that is the subsidy. The government pays your interest for that time.

I believe that for the unsubsidized loans, the interest accrues during the grace period. You just don't have to make payments. You should pay off the unsubsidized loans as soon as possible.

Why choose Avalanche or Snowball? Avalanche is slightly cheaper. It has you paying the least interest. Snowball is more flexible and more emotionally satisfying. In the beginning, it has you paying off loans quicker. If you have trouble with financial discipline, Snowball is easier to follow because of that sense of accomplishment.

In this particular situation, the difference between the two approaches is negligible. Both pay off the same loan first. Both pay off the same three loans before the other three loans. And both put the personal loan last.

The only real argument against these orders is the possibility that you'll have intermittent income. If you have no money to make loan payments, student loans (at least subsidized ones) allow you to pause payments due to hardship. The personal loan does not have that option. There is an argument that you pay off the personal loan first so as to avoid bankruptcy. Of course, you might still prefer to pay it off last, because it might be worth clearing it in bankruptcy.

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