Which loan to pay off first subsidized or unsubsidized

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Pay off the student loan with the highest interest rate first. That will save you the most money over time.

But if getting rid of small balances one by one motivates you more, go that route regardless of interest rate. When your goal is to pay off student loans fast, the best strategy is the one that keeps you on track.

Pay private student loans first

Private student loans come from commercial lenders, not the federal government. These loans generally have fewer repayment options or opportunities for forgiveness than federal loans — and higher interest rates.

You'll likely want to get any private loans off your plate first. Consider doing the following to help with this:

• Refinance at a lower interest rate. There's little downside to refinancing private student loans if you can qualify for a better interest rate. Refinancing can reduce your monthly payments, saving you money and helping you pay off private loans faster.

• Pay the minimum on federal loans. If you're going to make extra student loan payments, put them toward your private loans. To increase the amount you can overpay, consider enrolling in an income-driven repayment plan to decrease your federal loan bills. More interest will accrue on those loans if you do that, so calculate your total costs.

Always pay at least the minimum on all your student loans.

Pay off high-interest loans first

Once you’ve decided which type of loan to attack first, choose a strategy. Getting rid of loans in order of the highest interest rate is called the debt avalanche, and it will save you the most money. Paying off a loan with a 4.53% interest rate, for instance, lets you pocket 4.53% of the balance each year you would have been in repayment.

Here’s an example: Paying off a $10,000 loan at 4.53% interest in five years, rather than the standard 10-year repayment timeline, will save you about $1,259 in interest. Paying off a $10,000 loan at 7% interest in five years instead of ten years, however, will save you $2,050 or $794 more.

Pay off small loans first

Some borrowers like watching their loans disappear, which encourages them to continue focusing on debt payoff. If that sounds like you, use the debt snowball method. You’ll pay off the smallest student loan first, rather than the one with the highest interest rate.

You can also opt for a combination method. Rank your loans by interest rate, and if several have the same or similar rates, pay off the smallest one first. You’ll still get some savings from choosing the debt avalanche strategy, but you’ll enjoy early, quick wins, too.

As you pay off each loan, roll over your payment to the next highest interest rate or the next smallest balance.

Pay attention to the big picture

• Saved at least a month of expenses for emergencies.

• Started saving automatically for retirement, either by getting the company match on a 401(k) or putting money in a Roth IRA.

• Made a plan to pay off credit card balances, which often have the highest interest rates of all.

If you're not quite ready to aggressively repay student debt, some strategies can still help you chip away at your balance. For example, making biweekly loan payments is an easy way to shrink your repayment term. Refinancing also has no fees, and is a no-brainer if you have private student loans.

Estimate your potential refinance savings

Do the math when deciding how to pay off student loans. (iStock)

After the college graduation celebrations wind down, the reality of student loan repayment kicks in. Deciding how to pay off student loans begins with working out a budget, but there's more to it than that. When creating a repayment plan, it's helpful to approach paying down student debt in the right order. 

Start with organizing your loans

The first step in deciding how to pay off student loans is drilling down to the details. Specifically, you should know:

• The total number of loans you have outstanding
• Whether loans are federal, private or a mix of each
• Which loans are cosigned, if any
• Whether your federal loans are subsidized or unsubsidized
• Minimum payments for each loan
• Loan interest rates and whether they're variable or fixed
• When each loan's grace period ends, if applicable

WHAT IS A STUDENT LOAN INCOME-DRIVEN REPAYMENT PLAN?

Federal student loans offer a six-month grace period following the end of undergraduate studies before payments kick in. PLUS loans are the exception--repayment for those begin immediately after they're disbursed. 

The grace period gives you a chance to pick a repayment plan and come up with a strategy. Private student loan lenders can offer a grace period but it's not required. 

Choose a payoff method

When deciding how to pay off student loans, there are two basic approaches you can try: debt snowball or debt avalanche. 

The snowball method involves paying off loans from the lowest balance to highest. The avalanche method means paying down loans from the highest interest rate to the lowest. 

Mathematically, you'll save more money over time by choosing the avalanche method, said Meagan Landress, CSLP®, advisor for student loan consulting firm Student Loan Planner. According to Landress, the snowball approach is more behavioral since you're getting small wins along the way which can help with staying motivated. 

HOW TO ESTIMATE YOUR STUDENT LOAN PAYMENTS

Set the order for student loan repayment

When there are multiple student loans in the mix, prioritization matters. When mapping out a repayment plan, consider following this order:

First: Variable-rate private student loans

Private student loans tend to have higher interest rates than federal loans. Variable-rate loans have an interest rate that's tied to a benchmark, meaning the rate could increase if the benchmark rate rises so it could be wise to get those out of the way sooner rather than later. 

Second: Fixed-rate private student loans

After variable-rate private loans, consider your fixed-rate private loans next. Though the rate is guaranteed for the life of the loan, it may still be higher than rates for federal loans, potentially costing you more in interest.

Unsubsidized federal loans, then subsidized loans. 

Unsubsidized federal student loans begin accruing interest right away so it makes sense to work on paying those down after making a dent in private loan balances. "Subsidized loans do not charge interest during in-school deferment, deferment or forbearance," Landress said. 

With unsubsidized and subsidized loans, you could follow the same snowball or avalanche approach. For example, you might pay down the highest rate unsubsidized loans first, then highest rate subsidized, followed by unsubsidized and subsidized loans with the lowest rates. 

STOP STUDENT LOAN WAGE GARNISHMENT WITH THESE 3 TIPS

Avoid repayment missteps

Loan consolidation or refinancing could help to streamline student loan repayment by combining multiple loans into one. But you should consider any trade-offs involved. That includes sacrificing deferment and forbearance periods, income-driven repayment options and public service loan forgiveness. 

Finally, watch out for these other mistakes when managing student loan repayment:

• Avoiding your lenders when you're struggling to keep up with your payments.
• Overlooking income-driven repayment options for federal loans.
• Missing out on interest rate discounts because you haven't signed up for autopay. 
• Falling prey to student loan debt relief scams. 

Which loans should be paid off first?

Which loan do you pay back unsubsidized or subsidized?

Can you pay off a subsidized loan early?

Is it better to pay off student loan interest or principal first?