The Best Way to Pay off Student Loans: A How-To Guide

When I graduated with over $20,000 in student loan debt several years ago, I began to search for tips and tricks on how to pay off student loans more quickly. I knew that there was a hidden secret, an advanced mathematical method that would allow me to cut my payoff time in half. Of course, I expected this would be a complicated solution, one I would have to study carefully and use with extreme precision. But after all of this searching, I was amazed to discover that the best way to pay off student loans actually involves one very simple rule, and I’d like to share it with you.

Before we go any further, please understand that this method isn’t for everyone. If your loans take up a large portion of your monthly income and/or you have other significant debt, you may be better off saving more now and using a program like Income-based repayment with your loans. If your loans are manageable, you have significant extra income and you are aiming for the stability and peace of mind that accompany freedom from debt, then this is the best way to handle your loans.

Pay More than the Minimum Monthly Payment

First off, know that you will be doing yourself a huge favor if you can pay more than the minimum monthly payment on your student loans. I don’t know about you but a standard 10-year payoff sounds like a long time, and I know that time can be cut in half (or more) if you manage your money wisely and put extra income toward your loans. Of course, this isn’t a realistic option for everyone (especially not for those who are unemployed, under-employed, or have lots of other debt).

If you fall into one of these categories, try to make the minimum payments until you get back on your feet. You might also consider deferment or another repayment plan. A student loan counseling session might be able to help you sort it all out.

The (Not So Complicated) Formula

If it is feasible for you to pay more than the minimum monthly payment, you will need to follow one basic rule. This is the simple rule I learned after searching high and low for complicated formulas. It goes something like this:

Put your money toward the account with the highest interest rate.

Yes, it’s really that simple. Following this principle is the best way to pay off student loans and will save you money in the long-run.

Why does it work? Because the accounts with the highest interest rates will grow the fastest, increasing your total payment and extending the length of your payment. By getting rid of these first, you take away your debt’s ability to grow.

Proof that this is the Most Efficient

This is a new section we’ve added to the post on April 10, 2014 in response to numerous questions in the comments. We hope that this answers, once and for all, any doubts about this method. I struggle at times with wrapping my head around the math involved too, but this should demonstrate that the interest rate is really what matters.

Our Example

Here’s the hypothetical situation we created. Let’s assume you have two loans with the following characteristics:

Loan A: Principal – $18,000; Interest Rate – 5%; Minimum Monthly Payment – $190.92
Loan B: Principal – $10,000; Interest Rate – 6.5%; Minimum Monthly Payment – $113.55

We’re going to assume that you can make the minimum monthly payments without any problem and that you also have an extra $300 to put toward your loans. Now, there’s two ways you can use your extra money. You can pay off Loan A in full and then pay Loan B. Or, you can pay off Loan B and then pay off Loan A.

If you pay off Loan A first and then put all your extra to Loan B after that, these will be your results:

Paying off Loan A First
Loan Balance after Second Month Months of Repayment Total Paid
Loan A $17,166.40 40 $19,574.08
Loan B $9,880.90 53 $12,167.71
Total (A+B) $27,047.33 n/a $31,741.79

On the other hand, if you pay off Loan B first and then put all your extra to Loan A, these will be your results:

Paying off Loan B First
Loan Balance after Second Month Months of Repayment Total Paid
Loan A $17.767.60 52 $20,633.00
Loan B $9,279.30 26 $10,747.38
Total (A+B) $27,046.96 n/a $31,380.38
Savings with this method: $361.41

So the first question you might ask is why the table includes a column for “Balance after Second Month.” While that may not seem important, it really is. Note how the total balance after the second month is lower in the method where we pay Loan B first. This is the sign of efficiency. This is our initial proof that the method works and that by minimizing interest we are taking down the balance as quickly as possible.

You’ll also notice the “months of repayment.” Again, our method is superior. By paying Loan B first, you will complete the repayment in 52 months instead of 53. And, of course, you will also save $361.41!

The savings might not seem like much, but it’s actually pretty significant in terms of overall percentages. And, keep in mind that this is just a hypothetical. If you have a higher student loan total and interest rates with a greater range (say one at 3% and one at 10%), then this method could mean even bigger savings for you.

We also want to address one other point, which has come up in the comments and in the original post. What happens if you have two loans with the same interest rate but different totals? So for instance, maybe you have a $5,000 loan at 6.5% and a $10,000 loan at 6.5%.

Well, from a mathematical standpoint, there is no difference in the outcome. No matter which one you pay first, you will end up paying the same total amount, and it will take you the same amount of time.

But from a perspective of financial stability, it could be good to close one account, and you will achieve this by paying the smaller loan first. This is what the CFPB advises, as you will see in their letter, mentioned later in the article.

One Obstacle: Finding the Right Information with Your Loan Servicer

Multiple Student Loan Servicers

We have given you a very simple formula for the best way to pay off student loans, but dealing with student loan servicers can be confusing. When you log into the National Student Loan Data System, you might find that you have a handful of student loan servicers. In fact, Federal Direct and FFEL loans rely on 12 different servicers in 2017 (this is an improvement from the 17 servicers that were being used when we first wrote this article in 2013)! Keep in mind that this doesn’t include Perkins loans or any private loans you may have.

It’s very likely that you will have multiple student loan servicers, which means you will make multiple student loan payments each pay cycle (some may be monthly; others may be quarterly). You will also likely have multiple online accounts and usernames, and the whole process can become very confusing. Keep detailed records about your loan servicer and your account information and know that your loan could move to a new servicer at any time. Write down information for each loan you have and include the principal, the minimum payment, the interest rate, and the servicer who handles the loan.

Finding the Interest Rates and Understanding How Payments Are Applied

You will need to understand the terms of each student loan servicer when you make your student loan payments. This might take some work on your part, because the interest rate for your loan can be difficult to find. Some servicers bury this information deep within their website, so be sure to look carefully, and call customer service for help.

It also might be hard to get an explanation about what happens if you pay more than the minimum payment. What will that extra money go toward?

As you know, we want the extra money to go toward the account with the highest interest rate. But will your servicer know to do this?

Here is the policy that Great Lakes (a leading federal student loan servicer) has for extra payments:

Your additional amount will be applied:
1. First to any accrued interest not covered by your regular monthly payment.
2. Then to the principal balance—the amount of money you originally borrowed—of your loans with the highest interest rate.

Interest Rates vs. Accrued Interest

If you are paying more than the minimum and have not missed any payments, chances are that all your accrued interest will already be covered (so #1 above won’t really apply to you). Even if it does apply to you, keep in mind that it’s still more important to focus on interest rates, not accrued interest.

Let me explain quickly, using this example:

Loan Type Balance Accrued Interest Interest Rate
Stafford Loan $5,028.33 $28.33 6.80%
PLUS Loan $2,013.17 $13.17 7.90%

According to the Great Lakes method, an extra payment here would be applied first to the $13.17 of accrued PLUS Loan interest and to the $28.33 in Stafford Loan Interest. But we know better. We know that interest rates are more important than accrued interest. Even though the Stafford Loan has more than double the amount of accrued interest, it should not be your priority. As a percentage, the PLUS Loan is still growing more quickly. If it was up to us, we would put all of our extra payment toward the PLUS Loan.

However, if you let interest accrue on a loan (the Stafford Loan in this example), it’s principal will increase through what is called capitalization. If this happens too much, your minimum monthly payment may increase. Loan servicers often try to prevent this from happening (as with the policy from Great Lakes).

When Student Loan Servicers Bundle Loans into Groups

What can also create confusion is when a student loan servicer bundles multiple loans into a group. For example, let’s say Great Lakes handles four of your student loans, and they label them Loan A, Loan B, Loan C, and Loan D. Then, they break into two groups:

Group 1: Loan A (5%) and Loan B (4.5%)
Group 2: Loan C (3%) and Loan D (6.8%)

In this case, you want to make sure your extra payment goes toward Group 2 and then Loan D. For some servicers, you might be able to select “Group 2.” For others, this may be done automatically.

The best way to make sure that your student loan payment is put toward the right loan is to call the servicer directly. Write down the name of the representative and make sure that the payment is applied correctly.

The CFPB has released a sample letter to send to each lender, telling them how to apply your payments. Check out the letter template, fill it out for each lender, and send it out so your loans are paid in an efficient manner.

Another tip to pay off student loans: Bi-weekly Payments

You might be able to save even more on your student loans if you pay bi-weekly instead of monthly. This way, you get an extra payment in each year (the equivalent of making an extra monthly payment) and you save on interest because you don’t give it as much time to accumulate. This could be a good strategy to incorporate, as long as you remember that interest rates are king when paying off student loans. This method may not work if you’ve enrolled in automatic payments (which usually come with a reduced interest rate).

What about Taxes?

We have received quite a few questions and comments about the tax deduction you get for paid student loan interest. On the surface, it seems like this might create a situation where you should not follow our “efficient” method so that you can get the deduction. But really, that’s not the case. We created another post that goes more in-depth on this and provides an easy to follow math example: Student Loan Tax Deduction and your Repayment Strategy.

Let’s Review the Best Way to Pay off Student Loans

The best way to pay off student loans basically comes down to three strategies:

  • Make more than the minimum monthly payment.
  • Put extra money toward the account with the highest interest rate.
  • Make bi-weekly payments or enroll in automatic payments to reduce interest.

Despite my initial gut feeling that this process would be drawn out, mathematical, and difficult, understanding how to pay off student loans is actually pretty simple. Just remember that the best way to pay off student loans starts with the interest rate. The interest rate determines how quickly your debt will grow. If you can eliminate accounts with high interest, you can keep your debt from growing and will become debt-free in less time. For another example, check out our post on the debt ladder.

If you are struggling to make the minimum monthly payments on your student loans, or if you have any other student loan questions, consider signing up for a student loan counseling session!

Thomas Bright is a longstanding Clearpoint blogger and student loan repayment aficionado who hopes that his writing can simplify complex subjects. When he’s not writing, you’ll find him hiking, running or reading philosophy. You can follow him on Twitter.

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363 responses to “The Best Way to Pay off Student Loans: A How-To Guide”

  • Crystal

    I know this is an old post, but I’m finding it so helpful! I hope you can give me a little more information. I made the mistake of putting my loans in forbearance when in grad school and now have capitalized interest on both loans.

    Loan 1 – Principal = 81,048.70, Capitalized interest = 16,954.21.
    Loan 2 – Principal = 42,938.93, Capitalized interest = 3,189.79

    Should I put extra money towards the capitalized interest or principal at this point (or does it not matter)?

    • Emilie Burke

      Hi Crystal! That’s a great question! In my experience, loans require you to pay the capitalized interest first. Of course, this is specific to the terms of your loan. If you have the option, I’d go for the quick wins of knocking out that capitalized interest. You don’t want your interest accumulating interest!

  • Thomas, can I ask a question about accelerated payoff and the auto-payment amount adjusting? In this scenario, i’m in auto-payment and paying off an additional say $100 each month. However, because my loan is a 10 year loan contract, the monthly auto-payment keeps adjusting an getting smaller (because I’m paying off more).
    Essentially, its fighting my ability to pay off the loan faster, and frankly seems like a subversive business practice. How can I beat this? Should I just take the original monthly payment I was doing before I started accelerating payoff and continually adjust my additional payment to counteract the decrease? For example: Original monthly payment was $600. I added an additional $100 each month and now the auto-payment monthly payment is $580. So this month, instead of paying of an extra $100, I’ll pay off $120. Does that make sense? Thanks so much for your advise Thomas!

    • Thomas Nitzsche

      Hi James, My advice would be to see about changing from auto-pay with the creditor and instead use your bank or credit union’s online bill-pay. That way, you can fix the payment amount you want to be sent every month, and easily adjust as needed. However, you may not want to do this if you are getting any sort of interest rate break, or other financial incentive for using their auto-pay. If that’s the case, you could talk to the creditor to see if they have a way of fixing the monthly auto-pay so that it doesn’t adjust. I hope this helps!

      • Thomas, Thanks so much for your advice, I’ll check with the lender to see if they will work with me. Thank you!

  • Hi Tom, my question might be redundant but considering how popular this post has been, I don’t have a great amount of time to look through all the comments to see if it’s been asked before. So, I understand you say it’s best to pay off the loans with the higher interest rate first, but what if the balance of other loans are significantly less? I unfortunately was in school when Sallie Mae was around (now Navient) and have several (7)different loans, either subsidized or unsubsidized. Amounts of each vary anywhere from $7k to $904. All interest rates are either 6 or 6.8 depending on the loan. So wouldn’t it be best for me to just pay off the $904 one first (6%) than putting extra towards the ones that are 2, 3 or 7k? Then rolling the payments from the paid off $900 one into the next lower dollar amount? Will it really save me that much to pay on the higher interest rate first even though it’s only a difference of .8%? Tanks!

    • Thomas Nitzsche

      Hi Jen, Since your APR’s are so close and you have some balances that are so low, the “snowball method” might actually be better for you, since you can quickly eliminate and roll over those payments. Technically it might save a few dollars to stick to highest APR first, but its probably going to be nominal and there is certainly a psychological benefit to snowballing. Meaning it’s more likely that you will push yourself a little harder to pay those smaller balances off faster to clear them off your list, in which case you would more than make up the difference. Good Luck!

      • Great! Thanks for the advice!

      • Have 3 loans with the same rate. I just picked one to overpay on. In order to get around their minimum payments I used a year (I am allowed 36 mo total) of forbearance. Now I will only make interest payments on the big ones (not required, but logical) and allocate the remainder of my normal monthly payment to the smaller one.

        • Emilie Burke

          It’s great that you have a plan!

  • Thomas, I have a question. In your article you say:

    *We also want to address one other point, which has come up in the comments and in the original post. What happens if you have two loans with the same interest rate but different totals? So for instance, maybe you have a $5,000 loan at 6.5% and a $10,000 loan at 6.5%.

    Well, from a mathematical standpoint, there is no difference in the outcome. No matter which one you pay first, you will end up paying the same total amount, and it will take you the same amount of time.

    Which obviously makes sense. But I’ve seen prepayment calculators that I swear say if you split the extra payment evenly you’d save even more. (If you had 2 identical loans rate and term.) the first extra $100/mo saves you x, an extra $200 only saves you x plus 45% give or take. Would you be better off sending each loan an extra $100/mo instead of $200 to one. (As the earlier payments save you more per dollar sent.) or is all their saving hypothetically assuming you stop with extra payments once one is Paid off? (Basically I’m asking if you can confirm paying $100/mo extra to two identical loans gives the same result as $200/mo to one and then the other.) I’m sorry if this is obvious but as my friends will attest, I’m no math whiz. I would have assumed they were the same until the prepayment calculators through doubt in to my head.

    Thanks and sorry for rambling but was trying to be clear and explain any possible questions with my question.

    • Thomas Bright

      Bill, great question and I think I follow. But, no, I don’t think there’s any value in splitting the payments differently. I wonder, how much did the tools show that you could save with a different method? I think you hit the nail on the head–and those calculators may not be accounting for the fact that you would roll over the payment from Loan A as an extra payment to Loan B once A is paid off.

  • Thomas, I have a suggestion for your readers. As you said, they (we) should pay down loans aggressively, making the minimum payment on all but our highest-interest loan, and throwing extra cash at the highest-interest loan as hard as possible. My suggestion is this: after that first loan is paid off, take the amount that used to be that loan’s minimum payment and add it to the extra cash that gets thrown at the new highest-interest loan. And when that loan is done, add its minimum payment to the pile. And so on, and so forth.

    Also, I recommend that they always pay enough into their 401(k) or 403(b) plan to maximize any employer matching, even if that means prolonging loan payoff a little bit. You should never say no to free money, especially when it’s going to be invested for several decades. In fact, I recommend that people max out their contributions to those accounts. 401(k) and 403(b) contributions provide a tax shield. What’s better: investing $1,500 for the next 30 years, or paying down $1,000 of ten-year debt and giving the government $500? (Actually, I built a sophisticated Excel model to look at the implications of diverting IRA or 401(k)/403(b) contributions to loan repayment. It’s really, really not worth it.)

    For context here, I’m an MD with the following remaining loan balance:
    -$41,814.34 @ 6.75% fixed
    -$1,422.68 @ 4.414% variable
    -$31,088.76 @ 4.414% variable
    -$39,617.57 @ 2.65% variable

    I look forward to making those numbers disappear.

    • Thomas Bright

      Mike, I absolutely agree! I hope that first point comes through in the article (maybe it’s too subtle)–folks should definitely be using that freed up money to accelerate repayment of the other accounts once one is paid off. I also agree, with potential reservations, about retirement contributions. With a match, this is almost a no-brainer. The exception might be in the case of extraordinarily high-interest private loans. But I totally agree with the spirit of what you’re saying. If we’re talking about a scenario with a 6.8% interest loan, or even lower like you have than it’s pretty clear cut. Some of our readers may have much higher rates, but again I definitely appreciate the logic of your recommendations. Thank you for adding some insight here!

  • Pamela

    My daughter is a college freshman and her current loans are in deferment. However, I am making monthly payments on them to try to help her out for the future. I cannot find any sort of repayment calculator that will let me input my ongoing payments coupled with her future anticipated disbursements to give a big picture overview of what she will be facing once she graduates in another three years. Any suggestions or ideas?

  • Hi Thomas,
    Unfortunately, I have not been making any payments while in school. I graduated in December and am in my grace period now. I want to start making payments… I have around $800 saved up. Is it better to drop all of that at once right now or spread it out over a few months for more consistent payments? I’m not sure I can make any more payments past the $800 if I spend it all now.
    Also, would you recommend consolidating the loans or not?
    Lastly, do you have any knowledge or experience with the programs for educators? From the reading I have done, the program seems non-beneficial for a person who can make monthly payments because of the time requirements needed before anything is forgiven.
    Thanks for any and all advice!

    • Thomas Bright

      Hi Erin,

      Paying early (ie paying all 800 now) is a good idea simply because the interest accrues every day. However, you want to be sure that you can afford your monthly payments in full once they come due. That’s most important since it directly affects your credit. As for consolidating, that can sometimes be an incredibly helpful option for private loans. We typically don’t recommend it for federal loans, though there is certainly a case for it, if you could move from something like 6 percent interest down to 3 or 4. It’s just important to realize the benefits of federal loan safety nets. I’m not as familiar with all the inner workings of educator programs, but I follow what you’re saying and agree. Typically, I think you’d want to go the forgiveness if you qualify, or pay off more aggressively than the standard repayment to save money on interest. Either of those would be better than just doing the minimum required for the standard, likely 10-year, repayment.

      • Thanks for your response! I will definitely be able to make monthly payments once the grace period is over, just not sure about monthly payments during the grace period. Thanks for the advice! Will be making that payment this week!

  • Antoinette

    Thanks for these great tips! I understand paying more than the min, paying off the loan with the biggest interest rate, and bi weekly payments, but I have a question. So, I will be finishing up my Master’s in May (where most of my $90,000 debt came from), and will be then enrolling into a doctoral program. Fortunately, I believe all, or definitely most, of my loans will stay in deferment and I will also be paid while obtaining my doctorate. I know I want to start paying on those loans while in school so that once I graduate and they kick into high gear it won’t be as bad. So would you advise me to pay on the interest (most of them are accruing as I type lol), or pay on the principle so that the future interest won’t be as much? OR pay down the interest for all the loans until there is none and then work on the principle? Thanks again!

    • Thomas Bright

      Hi Antoinette,

      Grr, I know the feeling about how fast those loans accrue interest! The goal is definitely to pay down principal as much as possible. So once you’ve met the minimum monthly payment, you’ll want all the extra funds to go to the loan with the highest interest rate. Your servicer will require outstanding interest on that loan to be paid down first (if not already paid in full with the monthly payment) and the rest will go to principal. Good luck!

  • Not sure if this thread is still active, but here goes.

    Hi Thomas – I had a quick question that I thought you might be able to help with. If I have a few loans that started at different points in time, does that change the dynamic of which loan you should pay down first? The reason I’m asking is that in an amortization table, the payments in the final periods of a loan are almost fully directed at principal (versus interest). This situation seems to give rise to a possible rare exception to the very smart rule of focusing on higher interest rate debt first.

    For example, if you have a student loan with a higher interest rate than a mortgage, but you’re in the last year of your student loan payments and have just begun a home mortgage with a slightly lower interest rate, wouldn’t you be better off paying down the home mortgage? This is assuming the student loan payment is almost 100% a principal payment.

    Purely a hypothetical construct, but I have a large amount of student loan debt and am looking into buying homes in the near future – just trying to gather all the info as I think through the loan options!

    • Thomas Bright

      Hi Andy,

      Ok so I think I follow you, but without being able to do a deep dive into the math I think the “pay the highest interest” rule still applies. When the payments are approaching “100% principal” that’s only because the principal is so small, right? So for instance if you had a $200,000 mortgage originally and it’s near the end you might just have $5000 left to pay. But essentially this scenario is just a new spin on the question of “Do I pay a $1,000 student loan with 10% interest first or a $100,000 student loan with 3% interest first?” In that same scenario, the payments on the $1,000 loan will be almost all principal, but that loan is actually still growing at the fastest rate and can lead to inefficiency if the method is changed.

  • Rebecca

    Hi Thomas,

    Thank you for posting this! I was wondering if you could give me some advice on my current student loan situation.

    I borrowed $3k per year for the first 3 years of undergrad. The interest rate is the same on all 3 of the loans (6.8%). Does it matter how I pay them off in regards to how much interest I will pay over all?

    So far, I paid down the loans so that they were all about the same amount (and also to take care of the larger amounts of interest that had accrued on the older two loans). Then, I began to pay off the older loan first, then the second loan, and then the last/newest loan.

    I guess I’m just wondering if the interest paid will be any different if I pay $100 on each of the loans ($300 total) or just use the $300 on one loan and don’t pay anything on the rest. From my calculations, it appears to be the same because the 3 loans all have the same interest rate.

    Basically, I’m just wondering if I have really screwed myself over financially in the method I have been using to pay, or if it would end up being the same no matter what.

    Thank you in advance for your help!

    • Thomas Bright

      Hi Rebecca, you are totally fine. Everything will work out the same no matter how they’re paid. Instead, your consideration might be getting one paid in full as soon as possible (which can help your credit standing) and to do that you’d focus on the smallest.

  • Cortney

    Hello Thomas,

    Thanks for taking the time to answer everyone’s questions. I am learning a lot reading the various scenarios. In reading each, I was curious about your recommendation. I currently have student loans (taken out in 2011) and have been on the IBR plan since Oct 2015 (10 yr plan). Prior to that time, my loans were in deferment. Just before my first payment was due, I made $3,400 payment, and have since made a $400 monthly pymt ($354 is due). My loan is presently $34,174 (originally $30k).
    I would love to build up my savings (to eventually buy property), but also want to pay off my loans as quick and painless as possible. My current plan is to pay on my loan $400 a month which is an over-payment, and then put in my savings $850.

    Loan A – 8,470.41 – sub
    Loan B – 14,469.89 – unsub
    Loan C – 4,235.21 – sub
    Loan D – 6,906.88 – unsub
    all at interest rate of 6.8%

    My question is, which loan(s) would you recommend putting my over-payments to in order to pay off all loans in the quickest time; as I have not designated that in any of my previous payments. I am currently ahead payments ($45), and am not due till Jan. I had calculated that continuing on my monthly payments I can save $345 by the end of my last payment in 2025.
    Would you recommend that I switch my saving amounts? Pay potentially up to $800 on my loan (as long as financially possible), and then put in saving $450+ each month. I had calculated that my loan could be paid off in potentially 4.5 years (2020) with a saving of $7,900.

    I guess it’s also a two-part question, because, do I stretch payments out for 10 years and potentially putting in my savings $8,000+ over time (2025), or potentially see that money being saved collectively.

    Sorry if this questions provides for a very simple answer, just really curious on your take.

    Thank you in advance for taking the time to read my post. Any suggestions, recommendations, etc are very much appreciated.

    My Regards,

    • Thomas Bright

      Sorry for the late follow up Cortney,

      But great question! This looks fairly similar to my personal repayment, and at an interest rate of 6.8 percent I felt like paying that off was just as good as saving. Everyone has their own goals, though. But basically, that rate is pretty close to what you’d expect to get on average in investments, so it’s significant. Personally, I would build an adequate emergency fund and pay the loans off aggressively from there. But I totally get the desire to own property and so forth. Neither way is “wrong.” so you’ll have to think more about what’s most important to you. But however you move forward, paying extra toward Loan C would align you with the method described in the article. Good luck!

  • Hi Tom,
    Is it better to start paying on a higher interest loan that is in deferment until January 2018 or a loan with a lower interest rate that goes into repayment in January 2017?

  • Hi Tom,
    Not sure if this post is still active as I see most comments are from a few years ago. This is seriously the only site I have ever found that helps me understand what is going on with my options of repayment. Thank you so much!

    Just curious though. I am currently in deferment as I am finishing a second degree but on the topic of private loans.

    I have one at 16,400 and 9.24 % interest
    and a smaller one at 6,700 at 9.9% interest

    Since the interest rates are so similar wouldn’t it be better to start paying off the large one first because it will accrue more daily interest off the principle amount? This is what is so confusing to me.

    Thank you in advance!!

    • Also one more thing. When I do pay while in deferment it is saying I have the option of having it go straight to my interest first and then once that is paid off pay my principle? Is this beneficial at all?

      • Thomas Bright

        Yeah, basically your interest hasn’t yet capitalized. Once it does, the amount will be added to your principal and then the interest applied to this new, higher balance. In terms of efficiency, you’d probably be best off wiping out the outstanding interest on your account with the highest interest rate, and then attacking the principal on that same account from there. Hope that makes sense!

    • Thomas Bright

      Hi Grace,

      Still active! Thanks for stopping by and commenting, and it’s great to hear that the site has been helpful.

      The simple answer to your question is that, in terms of efficiency, you’re still better off putting your extra funds toward the $6,700 loan. This one is growing faster and will actually cost you the most in the long-term even if it doesn’t feel like it right now, given their difference in size. Somewhere else in the comment thread I gave an example of fish in a pond. Sounds silly, but it might help demonstrate this concept (which totally threw me for a loop at first too).

      Some other benefits of paying off that $6,700 loan first in your case are that it could have a benefit to your credit score and it would lower your monthly debt-to-income ratio.

      Best of luck!

  • Amanda

    This is a great article you have written. I stumbled on your article when searching the best way to pay off student loans without it effecting your credit score negatively if you are to pay it in full. We are trying to achieve two things, pay down student loans and increase credit score. From what you have written, paying off a student loan in full could actually hurt your credit score.

    We have about 15K to put towards student loans but looking for advice on how to use that 15K and bring up the credit score. I would assume that we should pay large amounts to the loans that have the higher interest rate but not pay them in full since that will lower the score. The exact loans are as follows:

    Loan A – $8,042.09 at 2.4%
    Loan B – $10,408.76 at 6.55%
    Loan C – $12,397.55 at 5.8%
    Loan D – $1,114.95 at 5.8%
    Loan E – $12,481.93 at 6.55 %

    What would be your suggestion on how to apply the 15K that will have a positive effect on DTI and increase credit score.


    • Thomas Bright

      Hi Amanda,

      Glad the article has been useful–and this is a great question! The answer is a little complicated, but let me try my best. The main reason a credit score might decrease when you pay off student loans is because it could throw off your “credit mix.” Student loans are installment accounts, which are in a different category from revolving debt like credit cards, so they often help give you a diverse credit profile. BUT, it doesn’t sound like you are thinking about paying them ALL off, so you may have very little to worry about. In other words, you will still have some student loans, so you should have a credit profile that’s plenty diverse.

      As for DTI, that can be tricky too. I wonder if maybe you all are thinking about buying a house? My take on that is that paying off a loan in full might benefit you significantly in that regard. When we think of DTI, we’re usually thinking of how much of your monthly income has to go out to monthly payments. If you pay a loan in full, that’s a monthly payment that is totally wiped away. The way most student loans are structured, their monthly payments are flat and don’t decrease with the balance. So, if you tried to spread the 15K around and didn’t close a single one of the loans, you actually wouldn’t decrease the amount of money, on paper, that you owe each month. Your DTI would be unaffected. On the other hand, paying one off in full would immediately lower your monthly DTI. Does that make sense?

      Maybe a better way to increase your credit score might be to leverage any credit cards you already have. If you could get an increased credit limit on your card(s) that would lower your utilization rate, all things equal, which could boost your score, sometimes dramatically. That’s often a savvy move. And of course don’t carry a balance on your cards.

      For your loans, I think you are fine to pay them off in the “efficient” way described in the article. In your case, that would mean paying off Loan B and putting the rest toward Loan E.

      Hope this helps–best of luck!

  • Claudine

    Hi Thomas,

    Thank you for your tips, they are very helpful! I do have some savings set aside and I would like to use a portion of it to pay off the principal balance. My school disburses the loans in three time periods throughout the year. Do you recommend that I divide the money I set aside into three chunks and put money towards the principal balance for each three disbursements, or would it be better to use the full amount for the first disbursement and work on paying off the principal amounts in the order the loans are disbursed?

    • Thomas Bright

      Hi Claudine,

      So are these are “new” loans each time they are disbursed, or do they build on top of each other? In either case, if you’re paying toward unsubsidized loans, paying earlier is better since they’re already growing–in other words using the full funds as soon as possible. The caveat is that you’ll want to keep an emergency fund set aside and on the off chance that you’re only dealing with subsidized loans, it likely makes the most sense to hold off on paying those until you’ve graduated and they’ve started accruing interest.

      • Claudine

        Hi Thomas,

        Thank you for your response! These loans are “new” loans each time they are disbursed.

        I do have another question for you, say I borrow the same amount of loans each quarter with set A being 6.31% interest rate and set B being 5.31% interest. Each quarter, another set of loans are disbursed for both sets. Would you recommend that I concentrate on paying off what I can only for the loans with the 6.31% interest rate throughout the year since it’s a little bit higher interest? Or should I make some payments towards both set of loans each quarter since interest will be accruing longer for loans that are disbursed earlier?

        • Thomas Bright

          Hi Claudine, if I understand this scenario correctly, paying the higher interest accounts would still be more efficient.

  • Jennifer

    Hello! Thank you so much for this helpful blog..but I am still having some issues understanding what I should be doing with my extra money I am putting toward loans. My loans are through Great Lakes and my extra payments are being applied in the automatic method you mentioned earlier in this post. My minimum payments are $193 but I am currently paying $300 to $400 a month. If I switch to a custom allocation of excess payments and put it toward my highest interest loan rather than accrued interest, is there a way I can prevent capitalization? I’m not completely understanding how capitalization works on my accrued interest. Thank you for your time!

    • Thomas Bright

      Hi Jennifer,

      Great question. Here’s how I think about it…capitalization here is just growth. In reality, a $10 loan at 6% interest is growing at the same rate as a $1000 loan at 6% interest. Since all your student loans can capitalize, it doesn’t matter. For example, if you ignore extra payments on a 6% interest loan while you focus on one with 8% interest, that 6% loan may very well continue to grow and capitalize. But the rate is never changing, and because of that you are still getting ahead by attacking the better rate.

      I realize this might not be a satisfactory answer. I was tripped up on this point when I first wrapped my head around how all this works too. It’s a bit of a silly example, but search through the comments on here for an illustration about fish growing in a pond. It might help!

      Good luck in your repayment!

  • Rashelle

    I pay extra on my monthly payments every month and make a big lump sum payment at the end of every year. This year I’ll be able to make a $10,000 lump sum payment on the account with the highest interest rate. Would it make a difference if I paid $833.34 each month as opposed to the lump sum at the end of the year? Thank you!

    • Thomas Bright

      Absolutely. Student loan interest accrues every day, so paying earlier will make a dent (in your favor)!

      Sounds like a great plan, and best of luck to you.

      • Tom Kam

        My son is only beginning his second year and his loans are in deferment until graduation. According to everything I’ve read, unpaid, accrued interest will be capitalized when repayment begins. Does that mean that there is NO difference between paying interest monthly, or making a single lump sum payment PRIOR to repayment (like 1 month before), since capitalization hasn’t occurred yet? Or are you saying that, during deferment, accrued interest is capitalized each month? Because it would make sense to make the “interest payments” to something that earns some interest during deferment, like a money market account or CD, and then make a single lump sum payment near the end. You would effectively cut your interest rate during deferment by a whole point. Feasible?

        • Thomas Bright

          Great thinking Tom,

          I had to double check too, but you are right–the interest won’t capitalize until repayment begins. This is an excellent point that I hope others will benefit from.

  • Francisco

    Thanks for the article, Thomas. What do you think about refinancing just enough on your loans so that you pay-off the capitalized interest at a variable rate (because I can probably pay it in 5 years) and this way, be able to post payments on the high interest rate-loan principals right away?

    • Thomas Bright

      Hi Francisco,

      I’m not sure I know what you mean by “just enough,” but I can say that refinancing is often a great option if you have the credit to qualify. If you could find a competitive fixed rate, that brings less risk and could be the better option, though obviously if things work out exactly as you plan the lower but variable rate could bring you additional savings.

      • Francisco

        Thanks Thomas. by “just enough” I meant finding a variable rate to pay off the capitalized interest on the load at once, so that every other payment goes towards the principal.

        • Thomas Bright

          I’m still not fully understanding (I probably need more coffee!). When you refinance, you will have to do it to the whole outstanding loan amount (interest and principal). So if I were you, I would look for the lowest possible fixed rate, or a variable rate that either doesn’t change for a long time or has a relatively low ceiling. I wouldn’t plan on the tactic mainly serving the purpose of getting rid of the capitalized interest…I would think of it as more of a tool to help you repay the whole loan. If you just pay off the capitalized interest, and then the rate goes up significantly, you might find yourself in hot water again soon.

  • Claude

    Still curious as to why you can’t pay the off the principal loan completely. If I have a %15,000 loan and I want to pay that principal balance off completely in one payment and bypass the balance – interest equation all together – why I can’t do that.

    • Thomas Bright


      You can definitely do that (of course, you will have to pay any outstanding interest too). Closing a large account like that is a great way to get a psychological edge. It’s just slightly less efficient if that account isn’t the one with the highest interest rate. Really, it depends on your goals and whatever gives you an edge.

  • Michelle

    I have saved some money to pay for a portion of graduate school but I will still need to borrow $25,000 in unsubsidized loans for my first year. I will not be able to make loan payments while I am school, although I plan on paying the interest. Does it make any difference if I borrow $12,500 each semester or if I borrow less the first semester and more the spring semester? Will the amount I pay in interest be the same either way?

    • Thomas Bright

      Hi Michelle,

      I would think that since unsubsidized loans start accruing interest immediately, that there would be some savings achieved if you wait to take out more in the second semester.

  • Melissa M

    Hello Thomas – I find your blog so comforting, thank you! It is so scary to be in huge student loan debt, as others I’m sure can attest to. And your blog sets us at ease. Here is my situation, and what would you recommend? I have $91,000 student loan debt, and I work at a public institution so am on the public service forgiveness route. I can definitely make the minimum that my plan determines $326, but this does not cover my interest rate increases at all, let alone make a dent in the principal. I can put in an extra $500 towards the loan, which will cover the entire interest for all of my loans (I have about 8, with the highest interest being 2 at 6.8% (one for $15,000 and one for $18,000). But, that would only leave me about $45 to pay toward the highest $ loan, and highest interest rate.

    Would you suggest that I continue to make the $325 minimum payment, and then put all the rest toward the highest dollar amount/highest IR loan, even though I keep accruing interest on the other loans at a high rate.

    Thanks again for your advice!

    • Thomas Bright

      Hi Melissa,

      Thank you for the kind words, and I’m so glad to hear this has been helpful Here’s my take on your situation… Is your current minimum payment based on a 10-year repayment plan? If so, you might not get any forgiven at all after 10 years, if that time period is synced with your payoff date. So, you might want to look into income-based repayment plans, which could make for a more comfortable month-to-month arrangement and allow you to actually have some debt forgiven. Though, maybe that’s what you’re already doing.

      On the other hand, if you want to aim for pure efficiency, then yes you’d want to pay the minimum and then put all your extra toward the 15,000 or 18,000 loan 6.8%. It’s actually recommended to put it toward the lower of the two (15,000 in this case) as that will allow you to close out an account the quickest, and they are growing at the same rate so no efficiency will be lost. You also mentioned “interest rate increases” which made me wonder if some of your rates are variable. That might change the equation at some point, too.

      Best of luck!

  • Melissa D

    I have a private student loan in default. I had to claim bankruptcy but the private loan did not go on hold during my bankruptcy. Which is a better option: Pay the offered lump sum of $6900 ( they say they will will report as paid in full for less than full amount) or pay the full $10,700?

    • Thomas Bright

      Hi Melissa,

      Ultimately you will have to make this decision, but the lump sum does sound like a helpful opportunity to save and potentially avoid some further credit damage. The most important, critical thing is to get this arrangement in writing before you pay.

  • Tabatha

    I’ve tried this method and it works. However with multiple student loans and higher debt it’s easy to become impatient and feel like the little extra isn’t doing much.
    I use a different method for my loan with the highest interest rate. Only because it makes me feel better, who knows if it makes faster progress.
    I save $100 a paycheck and set it aside. Once i have saved $1,000, I make a $1,000 payment to that loan with the highest interest rate. All the while still paying my minimums. Anything to cut loan repayment time down – I HATE LOANS
    Thanks n best of luck to you all

    • Thomas Bright

      Thanks for sharing your tips and method Tabatha. I totally understand your frustrations with how long it can take. Maintaining a psychological edge is definitely important!



    I am aggressively paying my loans, as this is my only debt. I am not in repayment yet, as I recently graduated. I am wondering if you or someone has done the math, I’ll give you an example to be clear. Say I have a $1,000 a month I want to pay. Should I give $600 to the highest interest loan that is unsubsidized (I have been only paying these types of student loans for the past few months) or should I also pay off the accrued interest of other loans, before that interest gets compounded into the principle?

    Thank you, Hope you can help.

    • Thomas Bright

      If we’re only talking about unsubsidized, then you’d want to keep paying the highest interest rate loan and not the other accrued interest with your extra payments, to achieve maximum efficiency.

  • Christine

    I am wondering, would it save more to pay biweekly without a .25% interest rate reduction or to keep paying automatically once a month with the interest deduction?

    • Thomas Bright

      This is a really good question. I haven’t crunched numbers on this, but my gut feeling is that it will vary, based on different factors/scenarios.

  • First of all let me say I am so impressed that you reply to every single comment! What a dedicated and thorough blog. I am so impressed and so very thankful to have found you!

    I am the worst case scenario in the student loan world. I pursued a graduate degree in medicine that I was unable to finish. My graduate loan balance including interest is $285,000 with an average 7.1% interest rate. I have $12,300 from undergrad at a 5.6% interest rate. Since I did not become a doctor there is very likely no six figure income in my future. So I’m on an income based repayment plan, my monthly payments are $650 on my grad loans and $33 on my undergrad loans. After 30 years of IBR payments, my remaining debt will qualify for forgiveness as all my loans are federal. This will leave me with a tax bill on the forgiven amount (in 30 years I will have paid around $486,000, but will have about $343,300 forgiven – the tax bill on that amount is going to be approximately $150,00 at my current rate.) If i pushed and paid $1,100 a month I would be able to pay off the loans in 30 years but will have paid a total of $689,300. If I continue to pay on the IBR rate and to invest at an average rate of return of 7.8% I can have the $150,000 set aside for the tax bill, and I will pay in total $634,000.

    It seems to me if I stay on the plan I’m on, which is IBR, and investing extra income to save for the tax bill, instead of making extra payments, I will save $53,300.

    To me it seems staying on the IBR and waiting for forgiveness is the best strategy. What I’ve also been doing, is anytime I have any extra, I’ve been splitting the extra between my investment goals, and my student loans, to decrease at least by a little what I’m repaying in interest in the long run.

    Because my student loans are so much higher than most peoples, it seems like the standard advice just doesn’t apply to my situation. I feel like I’ve utilized the calculators available to me, but with such a large amount owed, I’m worried I’m missing something. Can you review my strategy and advise me as to any other options, etc?

    • Thomas Bright

      Hi Elle,

      Thanks for the kind words and for commenting. I’m glad to hear that this has been a helpful post.

      You’ve definitely done your homework, and based on the numbers you’ve presented here, I think you are totally on the right track. Saving that $53,300 would be fantastic. One thing to keep in mind–that’s a long time to keep a constant investment return of 7.8%. I’m no expert in that arena, but that may be an ambitious estimate.

      One other suggestion came to mind for your situation–get a job that qualifies for Public Service Loan Forgiveness. Have you thought of this or pursued this option? In your situation it could make an UNBELIEVABLE difference. Here’s why: First, you’d still be able to stay on IBR, so your payments would only scale up/down with your new salary. You’d only have to make payments for ten years (120 payments). AND, the forgiven debt under this program is not taxable. So potentially, you would spend $81,960 (683 x 120) and be done with it. All the while, you could still be investing and saving for your other goals. Compared to the options above, this represents major savings.

      You may have to take a pay cut, but even then you may come out on top (and significantly).

      Here’s what I’d consider to be the main caveats:
      -You may have to take a pay cut (but you might not). What you’ll want to avoid if possible is not just a pay cut but a career trajectory that will limit your earnings later in life. Hopefully there would be a happy medium where you could work in public service but earn a similar salary and set yourself up to have good options later.
      -The rules could change. You never know when the rules about how this program works could change.

      Hope this is helpful, and thanks again for stopping by!

  • Hi Thomas,

    Thank you for this information. It is the best written article I’ve found on this subject.

    I apologize if you have already responded to this question/scenario, but I couldn’t find the exact situation in the comments below.

    I am currently on a standard, 120-month replay meant plan of my federal student loans (I do not have by private loans). My spouse and I are in a temporary dual-income situation; however, we budget (including min. Student loan payments) as if we are on a single income (my spouse’s). The second income goes entirely toward additional student loan payments and savings. Using your method, I have paid off my two highest-rate (6.8%) loans with “extra payments.” I am now moving on to the next highest-rate loans (6.55%), and I am currently putting an extra $1,000 biweekly toward my SL. I understand your general recommendation is to tackle these same-rate loans in size order, smallest to largest. However, I am wondering if it is the best approach in my case.

    Here is a summary of the three 6.55% loans I have:

    Loan A: $12,917.18 current bal., $12,000 orig. bal., & $167.68 monthly payment

    Loan B: $2,404.53 cur. bal., $2,000 orig. bal., & $30.99 monthly payment

    Loan C: $7,608.10 cur. bal., $8,500 orig. bal., & $98.35 monthly payment

    I should also add that this secondary income may not continue for much longer than a year or two.

    If I never paid anything extra, it is my understanding that I would ultimately pay the following amounts on these three loans:

    Loan A: $20,121.60 (I.e., $167.68 x 120)

    Loan B: $3,718.80 ($30.99 x 120)

    Loan C: $11,802.00 ($98.35 x 120)

    As a result, I would ultimately pay $8,121.60 in interest over lifetime of Loan A ($20,121.60 – $12,000); compared to the $5,020.80 in combined interest I would pay on Loans B and C (($3,718.8 – $2,000) + ($11,802 – $8,500)).

    Because of these figures, I am thinking it would be advantageous for me to prioritize repayment ($1,000 biweekly) of the higher-balance Loan A ahead of B or C; however, this seems to contradict the general rule you describe.

    I would greatly appreciate your thoughts. Thank you!

    • Thomas Bright

      Hi Sam,

      Glad you’ve found the article helpful, and thanks for sharing your situation. It’s great to hear about the progress you’ve made, and about you and your spouse’s smart budgeting! Nice work.

      Since those three loans have the same interest rate, you really can’t go wrong here. No matter how you distribute the payments across the three loans, you are going to end up paying the same amount in interest. It’s a little tricky to comprehend (still trips me up, too), but that’s how it works. In other words, putting that $1,000 to Loan C won’t save or cost you any more than putting it to Loan A. So this really comes down to benefits other than saving interest. The main benefit, then, is that you might improve your credit score/worthiness by having fewer open accounts, and you can free up the amount of money that HAS to be dedicated to SL repayment (in other words, the minimum payments). Both of these goals are more quickly achieved by paying the lowest balance accounts first.

      Hope this has been helpful!

  • Thanks for this. Since you seem to like answering hard questions, here’s one I’m scratching my head over!

    I recently inherited about $12,000 and my instinct is to immediately put it toward my student loan debt. I have no other debt and an emergency fund. I have about $90,000 in loan balance and pay $645 each month, at a 7.75% rate, under a 25-year repayment plan.

    But! I’m currently enrolled in the Public Service Loan Forgiveness Program, under an income-driven plan. This means that in about seven years, my remaining balance will be forgiven (I need to make 120 ‘qualifying’ payments to get loan forgiveness and have made 33 so far). And in the meantime, my monthly payments are capped at 20% of discretionary income, rather than being directly determined by my loan balance.

    So I can’t figure out if making that 12k lump sum payment toward the loan debt actually makes sense. I don’t think it would lower my monthly payment at all since that’s income-contingent (and I don’t expect any substantial increases in income anytime soon). Lump sum or advance payments don’t count toward those 120 ‘qualifying’ payments. So all I might do by reducing my loan balance is reducing the amount I’ll ultimately be forgiven in 2023.

    Does that sound right? The idea of actually paying off as little debt as possible in the next seven years makes me nervous. But it might actually make sense in this case (so long as the US government keeps its word, I guess). Am I better off investing that 12k?

    • Thomas Bright


      Great question and interesting situation! I totally understand where you’re coming from with feeling a bit strange by the incentive to not pay as much as you can. It’s called public service for a reason, though, and so you’ve definitely been making economic sacrifices in your occupation, and this is a great perk. I agree with your thinking here, and think that the $12K is probably better off as an investment or savings.

      Offhand I’m not 100% sure if/how your monthly payment would be recalculated after a lump sum of $12K, but it’s definitely not going to drop by enough to offset $12K. You have 87 payments left to reach the forgiveness period, and would need your monthly payment to drop by about $138 (12,000/87) — the math just isn’t there for that to happen ($138 is even a bigger percentage of your current monthly payment than $12K is of your current balance, so there’s just no way that will shake out).

      The only factor that might change your mind is job stability. You’ll want to make sure that you’re going to be in a forgiveness-eligible position for seven years, as you know. But even then, investing isn’t a bad idea as you can have that money (at least some of it) down the road if your situation changes and you end up needing it for your loans.

      Hope this makes sense and good luck!

  • Irannia

    Thanks for all the info. I am currently enrolled in a program that for 3 years the government pays your interest. Well, this year is my last and I will probably have to begin to make payments. I have 2 loans with the same company. I believe they are both 5.8% interest. Will it be better to consolidate. Another question: is there a way we can make payments to the principal like a home loan?

    Thanks so much for your input

    • Thomas Bright

      Hi Irannia,

      Consolidation (refinancing) can be a good idea if you can get the interest rate down significantly, but we actually don’t usually recommend it for federal loans. If you refinance them into a private loan, you will forfeit the federal safety nets (repayment plans when you face a financial challenge, etc.). As for paying principal–absolutely. That’s the key to getting the debt paid off. Your payments will go to accrued interest first, but once that is down, they all go to principal. That’s why minimizing interest is so important. It’s good that you’ve had help with that, but now that you’ll be on your own, hopefully the tips provided here will help. But at the same time, don’t feel like you have to pay them off as aggressively as the article suggests. You need to take a look at your whole financial picture/goals as well, and make sure you have funds set aside for emergencies. Best of luck to you.

  • Zachary Elkins

    Good day,

    I’ll get straight to the point. I have about 41k in total student loans. I’m about to receive an inherentance, which is well over what I owe the govt. How can I pay off my loans in an efficient manner without sacrificing too much of my inherentance? Please note that my inherentance will also be making interest depending on which investments I decide to leave them in or move over to another one. Is there a way to negotiate a settlement or a mathematical way to draw money from my inherentance to pay a larger portion of my remaining student loan balance while still making decent ROI from my inherentance accounts?

    • Thomas Bright

      Good question. Investments are always risky, even if they are putting out good returns now–so keep that in mind. But the general idea is that if they are gaining at a higher rate than your student loan interest rates, then it’s better to let them grow (especially if the different is significant). The problem is that you can’t predict the future or their long-term growth. So… if your payments aren’t too difficult, you may just want to keep paying them and leave the inheritance alone, or maybe there is a happy medium where you take out some but not all to pay of a portion of your loans. You could even consider refinancing your loans to a lower rate so they are even less burdensome. We don’t usually recommend moving a federal loan into a private loan via a refinance, but you could consider it given that you have such a safety net behind you in the inheritance. Good luck in your decision.

  • If I want to put a $5,000 payment on my Navient Loans. Would it be best to wait exactly one day after the auto-payment gets taken out in the middle of the month? Does it matter which day of the month you make the payment?


    • I am also asking if accrued interest will rise or fall based on the day of the month that I pay?

      • Thomas Bright

        I don’t think so. It accrues every day. It’s not like the interest kicks in on the third Tuesday or anything wonky like that.

    • Thomas Bright

      Hey Chris,

      Once that money is available and you’ve decided to put it toward the loans, you just want to do it as soon as possible. Do it today if you can 🙂 No real advantage to waiting, because your loans are actually getting bigger every single day.

  • Nathan

    Thanks for all of the great information and for answering questions.
    One more!:
    If I defer my subsidized loans, but still make payments, will those be applied to the principal?
    I’ve been trying to find an answer, but haven’t found a definitive one.
    Thanks for any and all help.

    • Thomas Bright

      Good question! Here’s the definitive answer–I even called up Nelnet to double check: If you have accrued interest, your payment will go to that first, then the rest goes to the principal. Keep in mind, subsidized loans still accrue interest while you are in deferment. The one exception is during “in school” deferment, in which case the interest does not accrue.

      Hope this helps!

      • I received a letter from Nelnet stating, “During your deferment, the federal government pays the interest as it accrues on subsidized loans, but you’ll be responsible for the interest that accrues on
        any unsubsidized loans you may have.”

  • Hello.

    Great article! I have 2 groups of student loans, one with 3.5 years and another with 23 years left to pay.

    Loan with 3.5 years left
    $14,000 Subsidized 6.5%
    $57,000 Unsubsidized 6.5 %
    $3,000 Unsubsidized 7.65 %

    Loan with 23 yrs left to pay (consolidated at 3.5%)
    $34,000 Unsubsidized
    $23,000 Subsidized

    Should i pay off the higher interest rate one that will get paid off in 3.5 yrs (6.5-7.65%) or should i start paying down faster the one with 23 more yrs to go (3.5%)? I’d really appreciate your help on this. Thanks!

    • Thomas Bright

      Hi Jo,

      So essentially the loans with 3.5 years left probably have very high monthly payments. The situation is very similar to someone who has those same loans with 10 years left to pay, but then puts extra toward them (applying our method). In other words, you’ll still achieve overall efficiency by putting extra payments to the loans with the highest interest rates. So take your extra and start with the 3K, then the 14K, then 57K, then the 23K, followed by the 34K. I’m thinking once you knock out the first three, you will have significantly more funds to put toward the rest, or another financial goal like saving for a home/retirement.

      Best of luck to you!

  • kabir lamar

    I have a student loan that is more than 15 yrs old I have made several attempts to pay it but financially it has been so hard and I even went back to school for another career 7 years ago which is the actual career I’m in right now. When I got my first loan I did not have my high school diploma nor a GED so I was never able to get a job in that field do to it and once I did get it I had decided to pursue a career that fit me and that I enjoyed. My question is can I do anything about the fact I was never told I needed a high school diploma in the first place to get a job in that field? I don’t think it was a federal loan.

    • Thomas Bright

      Hi Kabir,

      To me this sounds like a legal question. You would need to somehow prove that you were given the loan under false pretenses and therefore not responsible for it. I’m not sure how practical/possible this is to be honest with you. My understanding is that federal loans don’t have a statute of limitations, so you will be expected to pay. I would reach out to the servicer of the loan to see what options might be available. The Rehabilitation program could be a great option for you, so be sure to ask if it’s applicable to your situation.

  • Hi Thomas,
    Thank you so much for your greatly written and very informative article! Good news is though I just found your article, I have been already implementing most of your tips throughout the past year I went into loan repayment:) However, I was considering a new approach for my monthly payment and would love to hear your opinion on it.

    My current minimum payment is approximately $480 and I pay about $800/month. I was wondering whether it would help to pay $200/week instead of all the $800 at once. Essentially, you had a point on biweekly payments, but I would like to know whether that has to be set up through the lender or I could just devise to pay weekly or biweekly without changing the plan.

    I am very appreciative of all your tips and look forward to hearing your advice!


    • Thomas Bright

      Hi Dela, thanks for the kind words and for commenting! I think your plan sounds great–go for it! Student loans accrue interest on a daily basis so you’ll want to send payments as frequently as you can. I’ve never heard of lenders/servicers setting up a way to automatically make more than one payment each month, so I’m guessing you’ll need to do it manually. Great idea, and good luck to you!

  • Leanne

    Hi Thomas,

    I found your article a very informative read but still have some questions between unsubsidized and subsidized loan payoffs. Currently I am in school but will be taking some time off to take care of some family things. I went to a different school 6 years ago and have 5 loans from that school under AES. I have 3 more loans with my current school from Fed Loan. I have a question as to whether it will be better to pay off a subsidized loan with a higher interest rate or an unsubsidized loan with a lower interest rate (but is currently accruing interest while in school)? My loans are below with the repayment terms left on them. Currently all are in deferment because I am back in school but I want to get my loan debt amount down a little now. I’m just not sure which is the best loan to put the $1400 towards first. I am looking to buy a house in the next month and I also don’t want my payments to cost me an arm and a leg when I come out of deferment. My salary is good and I can afford to pay the payments now but with the house, car and student debt, I want to be realistic and not blow through emergency money either.

    Loan A: Subsidized, Repay Terms (77 months left when off deferment in April)
    IR: 6.8% Fixed
    Balance: $4718.51

    Loan B: Subsidized, Repay Terms (77 months when off deferment in April)
    IR: 6.8% Fixed
    Balance: $4724.09

    Loan C: Subsidized, Repay Terms (77 months when off deferment in April)
    IR: 1.72% Variable
    Balance: $2610.87

    Loan D: Subsidized, Repay Terms (77 months when off deferment in April)
    IR: 1.72% Variable
    Balance: $1958.04

    Loan E: Subsidized, Repay Terms (77 months when off deferment in April)
    IR: 1.72% Variable
    Balance: $1750.58

    Loan F: Unsubsidized, Repay Terms (10 years once off grace in Sept)
    IR: 4.29% Fixed
    Balance: $9375.00
    Unpaid Interest: $133.91

    Loan H: Unsubsidized, Repay Terms (10 years once off grace in Sept)
    IR: 4.66% Fixed
    Balance: $9069.00
    Unpaid Interest: $442.11

    Loan I: Unsubsidized, Repay Terms (10 years once off grace period in Sept)
    IR: 3.86% Fixed
    Balance: $4000.00
    Unpaid Interest: $304.70

    Thanks for your help!


    • Thomas Bright

      Great question, Leanne!

      You’ve got some options here. First, let me say that if you are saving for a house, it might not be a bad idea to hang on to your money for that, or even to keep it as an emergency fund (if you don’t already have one). If both of those are covered, then I think it makes sense (in terms of efficiency) to tackle the subsidized loans which will start accruing interest again next month. Also, be sure to keep an eye on the variable rate loans. Will they go up significantly, to the point that their rate will be higher than your others? If so, you’ll want to have a gameplan for prioritizing those as well. Good luck to you!

  • Schenley

    I have a quick question. Can you make principal payments while you are in school? I am going back to school soon and applied for student loans because I did not have enough money to cover the tuition upfront. However, from what I have calculated, I can pay off my loans by the time I graduate if the loan servicer will allow me to make large monthly payments while I am still in school. I’ve searched for the answer, but every article I’ve found online only addresses paying off loan interest while still in school.
    If they will not allow me to pay the extra while enrolled, I plan on setting up a savings account and putting the extra payments there. I can use that money on my second and subsequent terms, and I will only have a loan from the first disbursement.

    • Thomas Bright

      Yes, I believe you can do this. Now, technically it doesn’t make sense to pay off a subsidized loan (or any loan that isn’t actively accruing interest) while you are still in school because if it can’t grow it makes sense to delay it. If that’s the case, your idea to put it in a savings account (something accessible with no penalty for withdrawing the money) is a good idea.

  • Victor Rosas

    Hi Thom,

    I have 15,500 in student loans that i have to pay. I’m happy to say that i have the money to pay for this, but is there any way that I don’t have to pay for the Unpaid Interest “Accrued Interest” is there a way to negotiate this if I pay the whole amount at once?

    Thank you,
    Victor R.

    • Thomas Bright

      Hi Victor,

      Interesting question! I guess it couldn’t hurt to call the lender/servicer and make this offer. I’m doubtful that they would take it, but you never know. Please report back with the results and let us know how it goes!

  • I am currently in my grace period and will be until June. I have a pretty small loan amount and I have a hefty salary. I was thinking of paying off my loans one at a time, all of which are federal loans. My question is if I’m only making payments towards one loan at a time does that count as my monthly payment?

    • Thomas Bright

      Hi Allie,

      Unfortunately, no. You will still have to make a minimum monthly payment toward each individual account once you are out of your grace period. So in June, even if you pay off one loan in full, you will need to pay, for example, $100 to loan #2, $50 to loan #3, etc.

      Hope that makes sense and answers your question. You’re in a great position to be able to tackle these so aggressively. Best of luck!

  • I was just curious. I went through undergraduate and graduate school, finally obtaining a doctorate in Physical Therapy while living away from home in Florida. I wasn’t able to make any substantial money while in school. Long story short I have about $170k in loans:

    Direct Unsub Stafford Loan $21,985.00 @ 5.41%
    Direct Student Plus Loan $28,318.00 @ 6.41%
    Direct Unsub Stafford Loan $23,968.00 @ 6.8%
    Direct Student Plus Loan $27,583.00 @7.9%
    Direct Student Plus Loan $5,396.00 @ 7.9%
    Direct Sub Stafford Loan $8,540.00 @6.3%
    Direct Unsub Stafford Loan $14,791.00 @6.8%
    Direct Student Plus Loan $20,341.00 @7.9%
    Direct Sub Stafford Loan $5,453.00 @4.5%
    Direct Unsub Stafford Loan $2,594.00 @6.8%
    Federal Unsub Stafford Loan $10,264.00 @6.8%

    I have a secure job and I am on salary at the time. I do not foresee any employment issues in the near future. I was thinking that based on these interest rates it may be smarter to take a $170k loan out from a bank with a set 5% interest rate and naw away at that as opposed to the different rates I described above in the loans I have now. With these types of loans can I not just pay them off all at once with a lower fixed rate via a single loan from a bank? (I would probably need a family member to co-sign at this time, but they would).

    I’m curious how you would attack these large of a number efficiently. I have a future spouse who makes ample money but I do not want to become a burden for her. I would like to manage this myself. Any help would be greatly appreciated.

    • Thomas Bright

      Tim, your plan could definitely work. My only concern would be that your new loan, which will be very large, won’t have any inherent safety nets like these federal loans have. You are quite lucky to have only federal loans (no private), so you’d have to think long and hard about the perks you’d be giving up. You may qualify for some of the repayment programs, which although may not be as efficient in the long-term might help lessen the month-to month repayment burden so that’s something to think about. Long story short, a flat 5 percent rate would likely be more efficient in the long-run, just make sure you understand the risks of a traditional loan vs. what you’d be giving up here.

  • Dear Thomas

    Great article!! Thank you for taking the time to explain everything so painstakingly & clearly!!

    I am seeking your advise on my/ my daughter’s situation. I am helping my daughter to pay the student loans. she has 3 loans & the repayment started on 12/09/2015.

    The loan details are as below –

    LOAN A – $ 33, 531.01 – INTEREST RATE – 6.16%

    ( Last month it was 63,531.01- we paid 30 k towards this loan)

    LOAN B – $ 29,610.74 – INTEREST RATE – 6.96%

    LOAN C – $ 29,290.47 – INTEREST RATE – 6.96%

    TOTAL BALANCE – $ 92,432

    The total repayment amount before the repayment of 30 k was $ 1431.24.

    My daughter wants to continue with $ 1431.24/ month.

    Would like to know which of these loan accounts should the excess amount be directed to.

    second question –

    I have another daughter due to go to college Fall-16 & I have about 1 1/2 years expenses (tuitions, boarding etc ) – should I be directing some portion of this money towards the repayment of the loan for my elder daughter & take fresh loans for the second one.

    Thank you in advance!!


    • Thomas Bright

      Hi Shar, thanks for your question. In terms of efficiency, your daughter will want to pay her extra toward Loan C. That will put her repayment in line with this method. However, the other option would be to put those loans on a payment program (if they are federal) so that she doesn’t owe so much each month.

      As for the question about your other daughter, that is a tricky decision. There are merits to both sides. I’m sure your elder daughter would appreciate another contribution to her loans, but the younger daughter would probably like your help limiting her debt too. It’s a tough call. One thing you might want to take a look at is the projected interest rates on your younger daughter’s student loans. If they are significantly higher or lower than 6.16%/6.96 then that could affect your decision.

      Best of luck!

  • Thomas,

    I really enjoyed reading through your article and I think I am onto the right track but I have different terms on my loans. I started paying the highest interest first but I got to thinking that maybe that wasn’t the most efficient way.

    Account Payment Balance Interest Rate

    ACH/ecsi $60.00 $3,098.88 5.00%
    Mom Nelnet (83) $176.00 $9,642.33 7.65%
    Nelnet (123) $524.65 $49,760.94 2.14-6.55%
    Wells Fargo Student Loan (136) $45.00 $4,498.50 4.50%
    Navient (120) $212.00 $17,426.20 7.75%
    Wells Fargo Student Loan (233) $443.00 $58,122.11 6.25%

    These are all of my loans with the minimum payments listed, the number in parenthesis next to the loan servicer is the number of payments left if I make the minimum payments. My concern is the $58,122.11 wells fargo loan with about twice the amount of payments left compared to the rest of the loans and a fairly high rate. I am currently paying $1800 on top of the minimum payments. Where should I be putting that extra money?

    • Thomas Bright

      Hey Alex,

      Great question. First, let me say that you are doing a great job of putting that much extra money toward your repayment. Even in this situation, though, the method in the article will be “most efficient.” I agree that the Wells Fargo account looks most intimidating, and that the proportion of minimum payment to remaining balance is significantly different from some of the others. But if anything, that might be helping you in terms of overall efficiency. Basically, from a mathematical standpoint, you want to direct as much extra money as possible to the loan with 7.75 until it’s paid off and then move down the list. The lower monthly payment on the WF loan actually helps you achieve this goal.

      There will definitely come a time to tackle that Wells Fargo loan head on, once it’s the loan with the highest remaining interest rate. Of course, if some of these are federal and others private, you could think about some alternative repayment plans for the federal loans and then direct your optimized strategy to the private ones, which might shake things up a bit.

      Best of luck!

  • First off, thank you! Your previous responses to comments clarified a lot of questions that I had, particularly regarding higher balances at lower interest rates vs low balances at higher interest rates (plus I was trying to remember all my grade school math equations with your fish example) 🙂

    My question though, is if you have two loans at identical interest rates, one taken out a year after the other, but with greatly different balances, is it best to put extra payments towards the one with the higher balance first, towards the one with the lower balance first, or split any extra money you have equally between the two?

    Also, I contacted my lender previously and they stated that any extra payments will first be applied to outstanding interest and then to the principal balance. Is there a way/method/strategy you recommend in order to get extra payments to actually go towards principal vs interest, as this would seem best?

    • Thomas Bright


      It’s great to hear that you found the post and commentary to be helpful! Thanks for stopping in to ask these great questions.

      To your first question, the CFPB recommends that in this case you pay your extra toward the account with the lowest balance. Don’t split. The reason I think is that you will close that smaller account more quickly, which will A) provide some stability B) make your total monthly loan payment lower and C) provide a credit score boost, all things equal.

      To your second question, I would try using the CFPB letter, because it states that once the minimum payment is made on each loan, ALL the remaining payment goes toward the loan with the highest interest rate. It would be interesting to see if they would honor this request. Let us know how it goes!

  • Milena


    I would like to know if it makes more sense to try to pay the students loans while you are still in school or if that would decrease your chances or getting any other student loans in the future. Also, paying loans while still in school would benefit or damage your credit score?

    I would appreciate the guidance!



    • Thomas Bright

      Milena, as a personal story, I paid them while in school with money I made from a job on campus. I found it to be a good strategy (assuming that you save some money for fun and have some savings for emergencies, car repairs, etc.). This approach should have a positive effect on your credit score and should not affect your ability to take out more loans. The main benefit is that you limit interest growth, so it wouldn’t make sense for loans that aren’t growing before graduation (such as subsidized Stafford Loans). Hope that makes sense!

  • Graeme

    Hey Thomas,

    First off thanks for your article and the assistance you have given the numerous commenters before me. It seems you’ve helped countless people navigate the oft confusing realm of student loan debt and saved them significant money in the process.

    I am currently a first year law student and I have two student loans right now. One is a Direct Unsubsidized Stafford loan at 5.84% interest rate totaling $10,387. The other is a Graduate PLUS loan at 6.84% interest rate totaling $9,416. They are both serviced through Great Lakes. Right now the total amount is relatively small, but each additional semester I will be in school (another 5 semesters), the Stafford loan debt will essentially increase by $10,250 and the PLUS loan debt will increase by about $9,300 for every time I have to pay an additional semester’s tuition. Luckily I am at a school with good enough employment prospects to rationalize such a substantial financial undertaking, but in the meantime I’m in need of a little guidance.

    My first question is, for each time that I will need to borrow more money for an upcoming semester’s tuition, will I accumulate additional separate loans (leaving me with 6 Stafford and 6 Plus loans upon graduation) or will the additional debt simply be added to the principal on my 2 preexisting loans?

    Secondly, I have about $500 in extra income each month that I can afford to apply towards paying down my student loan debt while I am still in school. The basic hope is that, at least while the loans are still small, each month I can pay off the accrued interest plus a small amount of the principal. I’ve heard some traditional wisdom that the best move is to dedicate all available money towards paying off the PLUS loan with the higher interest rate first. However, I feel like if I were to do that now, eventually I would reach a point where the amount of monthly accrued interest on the Stafford loan with the lower interest rate / higher principal would be greater than the amount of monthly accrued interest on the PLUS loan with the higher interest rate / lower principal, leaving me with maybe not the most efficient utilization of the money I am applying towards the two loans. I’ve considered simply taking out smaller PLUS loans in the future to account for the additional $500 per month I tend to have in expendable income, however this income may not necessarily be guaranteed every month depending on my ability to manage work/school balance, so lets assume for now that isn’t an option. Basically my question is, in such a case, what is the most efficient strategy in terms of allocating that $500 per month between the different loans so that the total amount I owe upon graduation is as manageable as possible? Should my strategy change once the total debt reaches a certain amount? Any help would be greatly appreciated.


    • Thomas Bright

      Hi Graeme,

      It’s great to hear that you found the article helpful, and thanks for checking in to comment! I think sometimes that the best advice for graduate students can be different, so I’ll give you my thoughts on that. But first, let me clarify one thing. You are right that there may come a time when the Stafford loan will accrue more interest each month than the PLUS loan. BUT, that doesn’t mean it should be your focus. Remember that the rate is what matters and paying the PLUS account will still be most efficient. There’s a comment a few higher than yours where I gave another reader an example about fish to reinforce the comment. Check that out, and it may help.

      Also, in regards to whether you’ll receive new loans or have them added to existing loans…my understanding is that they will be new. That said, I admit not being 100% on this, so please call Great Lakes and/or your Financial Aid office to confirm.

      Now, a couple other points. You say that A) your school has fantastic employment prospects and B) The $500 each month is not a guarantee. The combination of these factors makes me think you should strongly consider holding on to some of this money. Trust me, I’m all for getting ahead on student loans, but I know that graduate life is tough. You have a lot more living expenses than an undergrad. you need to make sure you have a good emergency savings fund set aside, and that you’re prepared from everything from an unexpected injury to a car break down, etc. You also might want to think some about investing and saving a little for retirement.

      Best of luck!

  • Ashley

    Hi Thomas,

    Reading through your article and your responses to other people’s questions has been quite helpful! I was hoping you might be able to help me gain a better grasp of my own student loan situation. I attended graduate school and graduated in May 2013. My current loans are:

    -Direct Sub Stafford- $8,611.93 @6.5%
    -Direct Unsub Stafford- $29,443.74 @6.5%
    -Direct Unsub Stafford- $35,325.97 @6.5%

    Total Debt: $75,923.81

    I am currently on the Pay as You Earn repayment plan and my monthly payment is $138. I recently received a raise, and I just checked with my loan servicer and my payments will be going up to $240 starting January 1, 2016, and based on the repayment calculators the following year my payments will be $350.

    My questions are:
    1. Would you suggest paying extra each month even though I am on the Pay as You Earn plan, or should I just ride out the 20 years and hope some is forgiven? If I should be paying extra, how much would you suggest paying each month?
    2. Is there a point at which I can be “kicked-out” of the Pay as You Earn plan if my salary gets too high?

    Thank you for your help!

    • Thomas Bright


      These are great questions. Only you can choose how to move forward, but here is the big thing that jumps out to me. I’m all for paying off student loans as quickly as possible, but you also likely want to be working toward your other goals, like saving for retirement. It sounds like you have a nice job, that’s on the “up and up,” and so maybe it would make since to stay on the PAYE program so you can have a balanced strategy (working on your loans, but also saving). Sure, you could pay more on the loans each month to offset the interest, but don’t stretch yourself too thin.

      That said, I’m not entirely sure about how the conditions of the program change as your income increases (I need to do some more research on this myself). I think the idea is that the plan makes sense if it gets you a lower payment than the standard 10 year repayment. I’m not sure at which point your salary would demand a payment equal to that of a 10-year plan, but until then it might make sense to stay on board the PAYE program.

      Best of luck to you!

  • Jackie

    Not sure if I read this, but does the extra money I pay automatically go to the principle or does it go to paying off the interest? I’m confused as to why my monthly payments are not taking down my loan amount?It looks as though they are only paying the interest.
    Thank you,

    • Thomas Bright

      Typically the lenders apply payment to the outstanding interest first and then it begins going to the principal. What you may be able to do by contacting them is have the payment go toward one loan instead of being distributed across the accrued interests of multiple loans.

  • Hey Thomas,

    Great article, it’s been very helpful to me. I just set up my account on I’d love your input on my situation, as I’m unsure on how to approach it.

    Federal Loans (3 total)
    7750 @ 3.65%
    4150 @ 3.18
    2,750 @6.55%
    Private Loans (2)
    15,000 @5.25%
    10,000 @ 5.25%

    My question is this, when I graduated I had almost $3000 in outstanding interest on the private loans. I paid that off immediately, so that my payments would go towards principle, not just paying off the interest. However I’m still accruing north of $200/month on that loan, does that seem right? I have a little under $24000 as my balance after 3 payments (first of which being the $3000).
    If I follow the guidance from above, I should pay off the 2750 loan first right? as it accrues the most interest? I think I’m confusing myself with all these amortization tables etc. I don’t want the loans and have budgeted for $650/month to be put towards them. (almost $150/month extra) and I’m confused on where to put it.

    Any guidance would be appreciated, Thank you.

    • Thomas Bright

      Great question Bruce,

      To choose what’s best you’ll need to examine your situation closely. Things like–how much income you have, how stable is your job, etc. Private loans are the worst because they have zero flexibility. Your case might be a situation where you’d want to maximize payments to those and lean on some of the safety nets for your federal loans. After all, 6.55 % isn’t THAT much more than 5.25%.

      Imagine this, you lose a job not today but in three years. Assuming you still have student loan payments—if you all have are federal you’ll be in a better position with more leeway.

      You’re right that the method, as presented in the post, would have you pay the 6.55% loan first, but only you can make the call as to whether that’s the ideal way to go.

      Best of luck!

  • Thanks for the follow-up.

    I guess I’ll just have to settle for understanding the principle instead of the math. But, now I know what order to attack my loans in. Highest interest rate first!



  • I’m a little confused about how paying towards the loan with the highest accruing interest won’t be the cheapest in the long run.

    Loan A: $10k 10% 10 year
    Loan B: $8k 8% 10 year

    Loan A would be accruing $1,000 a year in interest and B would be accruing $800

    It makes sense to me that I would pay any extra on A because it has the highest interest rate and is accruing the most interest.

    Example continued:
    Through very hard work, Loan A is now: $4000 and B is now $5000 but they are both generating $400 a year in interest.

    If I keep paying extra on A all the way to paying it off, then B will actually start generating more interest. Wouldn’t it make sense to divvy up the extra once the point is reached where they’re generating the same interest? Although it would not be as emotionally satisfying because they would get paid off at the same time, it seems to me like this would save the most money.

    I’m personally looking at a combination of a mortgage, auto loans, and student debt, but any feedback on the math from this basic example would be helpful.

    Thanks for all of your work helping everyone towards financial independence.

    • Thomas Bright

      I’m right there with you and I remember that this threw me for a loop at first too. The simple answer is that rates matter more than totals. Even when the total interest is equal between two loans, if one has a higher rate of growth, that means it is costing you more in the long-term. Also, the idea behind this principle doesn’t change as the total amounts change.

      I tried this example in another thread, and I think it helps visualize what’s going on:
      Think about it this way. If a small pond had 10 fish but a 50% growth rate each year, then the first year it would only grow by 5 fish. But after 10 years there would be 576 fish! Now what if there was a bigger pond with 50 fish, but it only grew at a rate of 25%? After the first year, it would add 12.5 fish, but after 10 years, there would be 466 total fish. The bigger pond produced more fish in the first year, but the small pond grew faster and produced more fish at the end of the period.

      Maybe this isn’t a biologically feasible example, but I hope it demonstrates the following: just because something is growing less or equally (in total number), doesn’t mean it isn’t growing faster and won’t produce the most growth long-term.

      Best of luck!

  • Brandon

    Mr. Thomas Bright,

    That was an excellent article that I found very interesting and insightful! Thank you so much! I will be graduating in December 2015 with an Associates Degree in Business Management. I went to a 4 year school before but didn’t end up graduating, so I went to a two year school and will be graduating from there soon. I want to get a bachelors and MBA/JD in the future if that’s possible. I want to work in the banking/finance industry, but I don’t know if I will have good prospects with just an associates in Business Management. I was told I should be able to get entry level work in commercial banking. That’s good because I can get experience, gain more knowledge and move up the ladder.

    My loan provider is NAVIENT Department of Education Loan Servicing.

    Here are my 11 loans:

    Loan A: Direct Sub Loan $3,471.00 @ 3.4%

    Loan B: Direct Sub Loan $4,500.00 @ 3.4%

    Loan C: Direct Unsub Loan $7,466.70 @ 6.8%

    Loan D: Direct Sub Loan $1,000.00 @ 3.4%

    Loan E: Direct Unsub Loan $1,217.10 @ 6.8%

    Loan F: Direct Sub Loan $5,556.83 @ 3.4%

    Loan G: Direct Unsub Loan $8,330.64 @ 6.8%

    Loan H: Direct Sub Loan $5,564.52 @ 3.86%

    Loan I: Direct Unsub Loan $7,480.07 @ 3.86%

    Loan J: Direct Sub Loan $3,029.00 @ 4.66%

    Loan K: Direct Unsub Loan $9,806.94 @ 4.66%

    This totals $57, 422.80 thus far. What would be the best way to pay it off and how should I go about it? How long will it take for me to probably pay it off.

    Also, I am very interested in the articles you post even though I don’t understand them 100%. That is why I want to work in banking/finance. What books and websites do you recommend to gain more knowledge and understand of these topics and finance in general. Thanks for any help you can give and take care!

    • Thomas Bright

      Hi Brandon,

      These are great questions–thanks for dropping by to ask them! I’ll admit, some of my answers here aren’t scientific and are more based on personal experience.

      As for the actual loan repayment, in my opinion it’s difficult to put more than half your income toward student loans, but that is doable if you’re able to catch some breaks like getting a second, part-time job and living with family for free or cheap. I’m also not sure what sort of starting salary you’d be looking at, so for arguments sake, let’s call it $35,000. So the most you could pay annually would be $17,500. If you did that for four years, you’d contribute a total of $70,000, which should be enough to cover the original amount + interest.

      Getting a four-year degree and/or graduate degrees certainly sounds like a great plan, you’ll just need to be prepared to take on future debt, and you’ll want a good sense of the type of salary you’ll be making. depending on those factors, you might want to stay in school now so that your loans don’t have to be repaid. Just something to think about.

      As for additional resources… What has helped me most is that I have a lot of friends and colleagues who are math-oriented and help me talk through problems. That and I’m a pretty solid researcher, so my recommendation is to refine your research skills as much as possible. I don’t have a list of blogs or sites that I frequent very often; instead I just visit the places that have resources to help me solve whatever problem I’m currently working on.

      That said, two personal finance sites that are insightful include:

      Best of luck,

  • Cyndi Freilinger


    I am curious as to whether or not making small payments every day would pay off debt faster than paying the same total amount once or twice a month?
    $75 biweekly

    • Thomas Bright

      Yes, student loans accrue interest every day, so by paying daily you would limit that accrual. The issue here is really more about convenience than anything. I don’t know immediately of any policies like this, but you might want to check with the lender to ensure they don’t add a fee for submitting too many payments per month. Just worth double checking on that.

  • Hi Thomas,

    Firstly, thank you for writing this!! It really helped me understand the loan repayment process. I do have a question, though. My loans look something like this:

    Loan A: Direct Sub Stafford – $5,571.20 @ 3.86%
    Loan B: Direct Unsub Stafford – $7,197.00 @ 3.86%
    Loan C: Direct Sub Stafford – $5,571.20 @ 3.86%
    Loan D: Direct Unsub Stafford – $7,373.09 @ 3.86%
    Loan E: Direct Sub Stafford – $5,557.23 @ 3.4%
    Loan F: Direct Unsub Stafford – $8,149.34 @ 6.8%
    Loan G: Direct Sub Stafford – $844.97 @ 3.4%
    Loan H: Perkins Loan – $3,000 @ 5% (currently in grace with no interest accrual until October 2015)

    All this equals a monthly payment of $420.55 before the Perkins loan kicks in (Ouch). I was wondering if it would be better in the long run to do a Graduated Repayment Plan for an immediately lower monthly payment of $239.76, and take the remaining $180.79 and put that directly toward Loan F to pay it down quicker? Then once it’s paid off move on to Loans A-D? What’s the best strategy when the Perkins loan leaves its grace period? Thank you for all your help. I really appreciate it.

    • Thomas Bright

      Hi Jen,

      Great question. You are absolutely right to go after Loan F first, and I see where a graduated plan can help you do that sooner. The only drawback I see right away to the graduated plan is that one day down the road, the monthly payment is going to be pretty high, and you’ll want to make sure you’re prepared for that. Otherwise, that seems like a decent option.

      The Perkins loan, to my understanding, doesn’t qualify for graduated repayment, so you will need to check with your servicer about what options are available there. BUT, it will be the next in line for you to pay off once Loan F is done, since the Perkins has the next highest interest rate. Again, short-term this won’t be a problem, you can just put extra money toward Loan H (after F is paid). BUT, when your graduated plan payment becomes much higher you may find that you have much less to put toward H, if that makes sense.

      Good luck!

  • Thomas:

    Thanks for this site which is full of helpful information. I have a quick question, I am currently in college and at the end of my degree I will have approximately $55,000 worth in loans. I just received an update form the lender that states I have accumulated $56.00 in interest and that I can make a payment now, while I’m still in school.

    My job reimburses me $3,000 a year during my enrollment, so I need to know the following:

    1. Should pay the lender the $3,000 now or should I save the total $9,000 and pay it when I graduate?

    2. Should I also start paying the interest now before I have a set monthly payment?

    Please help, I’m definitely not getting a degree in finance lol.

    I look forward to your response!

    • Thomas Bright

      Hi Jayda,

      Thanks for stopping by and commenting! And don’t worry–no finance degree needed here. The real answer to your question is that it comes down to choice and what you’re comfortable with. Yes, paying the $3,000 now would be most efficient, since your loans are already growing with interest. Anything you pay now will save you something later. BUT, if you are still in school, that $3,000 may mean a lot more to you (an emergency savings fund, etc), so it really comes down to whether you are comfortable not having that money. As for number 2, paying interest each month can be a good way to keep the interest from accruing as much, and can be a nice happy-medium strategy where you are getting ahead a little bit without spending too much.

      Best of luck!

  • Thomas,

    After what you said I redid my spreadsheet and realized that the plan I outlined only worked if I manage to pay off all the loans within a certain time period. If I can’t to the schedule then I would actually end up paying more interest. Thanks for the advice.

  • My daughter will be attending grad school this fall and has been offered scholarship money to pay the entire balance, she has also been offered an unsubsidized loan that she will not actually need. Is she able to accept and use the funds from the current offer of the unsubsidized loan and use that to pay off a higher interest unsubsidized loan obtained during her undergrad?

    • Thomas Bright

      Great question. The undergrad loans should go back into grace period once she starts graduate school, so you will need to make sure that this approach really makes sense. If it does, I’d ask this question to the lender, because they can give a firm answer.

  • Thomas,

    I should mention that I am thinking of using this method of payment (my Jun 26th posting) over a course of two years. I would be consistently paying more than the minimum (actually 8x minimum every month). Taking that into consideration wouldn’t my method reduce total lifetime interest payments?


    • Thomas Bright

      Hi Kevin,

      I’m going to stick with the simple answer here. Pay the high interest account in total first. It will be the most efficient, guaranteed. If you can pay 8x the minimum, it won’t take long.

  • Adam Garrett

    Hi Thomas,

    My loans recently went out of deferment and I’ve begun paying them on schedule. Because I was not paying each month while in full time school, the amount owed is currently 12700, whereas the amount that I actually borrowed is 12,000. I wondered if that would negatively impact my credit, and wondered if paying 800 would have a positive impact on my credit, since on time payments would be under 100% after that versus over 100% of the amount borrowed as it currently is. I have the money to make it under 100% today, but would rather not use it if it won’t have an impact on my credit of more than 10 points or so. My FICO is around 700 right now, depending on which credit bureau that you’re talking about, and my Vantage is around 760-775 (the disparity is due to paid medical collections from a few years ago which Vantage doesn’t count against me). I don’t really care much about my Vantage score increasing because it’s used so little. It would only matter to me if it would have a significant impact on my FICO scores.

    I have paid off student loans in the past, worked a few years, then acquired new student loans. the current ones are my only installment loan. I have around 17k of revolving credit that I pay in full on time every time with utilization less than 10% throughout each month.

    I noticed today when soft checking my FICO through Discover that one of the top two things that they said was impacting my credit was the following:
    The balances of your non-mortgage installment loans (such as auto or student loans) are high compared to your original loan amounts. As you pay down your loan your balance decreases, which reduces the proportion.

    If I pay off 800 today, and continue to make on time payments, do you think that my score could go up 10 points within the year because of going just slightly under 100%?

    You probably would need to know more information for a more accurate assessment, but just a guess would be fine too.

    • Thomas Bright

      Hey Adam,

      You’re definitely looking at this the right way and without a doubt, all things held equal, your credit score will increase as you pay down that student loan. Over the course of a year, there’s a great chance that can influence your score by 10 or more points. What I can’t say with certainty is how much impact a $800 payment right now would do for your credit, though it could very well have an immediate impact. I guess it depends on what your needs are and how much spare cash you have. $800 is a lot to spend for the sole purpose of hoping for a credit boost. It might be better to just pay monthly payments (or slightly more) so that you are under the $12,000 mark sometime in the next 6-12 months. Again, that’s more based on your goals/needs. Whatever you decide–good luck! And please report back if you do see a significant score change based on your decision here. We’d love to hear about it.

  • Hi Thomas,

    Would a more effective way to minimize total interest paid be paying extra into the higher interest loan until its monthly interest is equivalent to the lower interest rate? Let say Loan A is 20,000 at 5% and Loan B is 25,000 at 6%. I would pay extra on the principal of Loan B until its monthly interest amount is the same as that of Loan A. Once the interest amounts are equivalent I will make payments that will keep the monthly interests of the two roughly the same (meaning a little bit more in Loan B than in Loan B to account for the higher interest rate of Loan B). In my mind (plus some simple math), this would minimize the overall interest paid. Also, if I plan to take this approach, would it make sense for me to switch to a graduate repayment schedule so I minimize the obligated amount I have to pay into Loan A each month so I can focus on getting Loan B down to the level I need for this method to work?


    • Thomas Bright

      Hi Kevin,

      I don’t think that will be most efficient. The concern here is not so much about how much interest is accruing or owed each month–instead it’s about how much interest you pay over the life of the loan and thus what percentage of the overall repayment goes toward interest. A loan that accrues less interest in a month’s time can still be a bigger efficiency burden than a loan that accrues more interest. For example, a $10 loan with a 25 percent interest should actually be paid off before a $50,000 loan with 5 percent interest. That $10 loan if left to accrue, will cost you more in the long run.

  • Hey Thomas,

    Thanks for the great article. I have some questions regarding my grad school loans:

    I have two loans that will have accrued interest capitalize next month if I don’t pay the accrued interest by the repayment start date. Below are the details:

    $30K principal; $0 accrued interest; 7.90% int rate (I have paid down the accrued interest to this point)
    $20K principal; $3200 accrued interest; 6.80% int rate

    I was originally thinking of putting my extra $3200 towards the $3200 accrued interest on the second loan to avoid capitalization and to decrease my tax liability with the deduction. But then I thought it may be a better idea to put that $3200 towards the principal of my higher rate loan (7.90%) after reading your article and thinking about it more. Would it be smart to pay off the accrued interest of $3200 to avoid the capitalization or continue paying down the 7.90% loan to avoid the higher interest accumulation on the principal? I think the tax deduction is the biggest contributor to my decision but I’m trying to identify a way for the 7.90% principal reduction to make more sense. Please let me know if you need me to explain further. Any help would be greatly appreciated. Thanks!

    • Thomas Bright

      Hi Cory,

      Great question! I’d stick to the plan laid out in the article and pay down the $30K loan with the higher interest rate–that’s my opinion. Here’s why: that tax deduction isn’t going anywhere. You will eventually end up deducting the $3200 (and more) as you pay down interest over the course of your repayment. Doing it now will just make the total repayment less efficient. You might like this article as well, which gives some more detail and examples: Chasing a Student Loan Tax Deduction Isn’t Worth It

      Good luck.

  • Hello Thomas,

    Stumbling to this website has given me a huge amount of insight towards student debt. I’ve read through most of the posts and I think I’m understanding the overall strategy you have towards approaching loans. However, I’d still like to ask for some clarification regarding my own student loans.

    I have approximately $55,000 in student loans from the same lending service (Great Lakes) in the form of 3 accounts. I recently graduated and but I’m still looking for employment. I have put in a request for deferment to my lender and am waiting to see if I am approved. If I’m correct, this means the government would pay interest until I can make payments. However, If I am not eligible for deferment, I might be eligible for forbearance in which payments are reduced or halted for I believe 12 months with interest accruing. I’ve been in close contact with my lender and I plan to start paying ASAP, so my questions are:

    1. Are forbearance/deferment the same as IBR? I remember my lender stating something along the lines of “if you make $0, you payment is $0 per month”

    2. While in deferment or forbearance,when I find employment, am I allowed to utilize the strategy of putting extra money towards the principle?

    3. If not, when is my account no longer considered in forbearance or deferment? When I can start making a certain payment amount?

    I have no problem living on a tight budget until I pay off my loans, even work two jobs. I plan to make bi weekly payments once I find my primary job and have that part figured out. I’m just unsure about what to do until then. Thank you in advance for any advice you can offer!

    • Thomas Bright

      Hey Chris–
      These are all great questions. Let me try to answer them along with some other clarifications:
      -You are responsible for interest that accrues during deferment/forbearance unless they are subsidized Stafford loans (in that case, you are right and the gov’t would cover the interest).
      -Forbearance/deferment isn’t the same as IBR, but does work similarly if you use it when unemployed. But let’s say you do get a job that pays $20K. That might not be enough income to make a $800 monthly loan payment (for example), so the IBR plan would help lower that payment.
      -Deferment is meant to be temporary. Once you find steady work you should come off deferment, and the lender might even require that.
      -This might vary by lender, but usually there is a maximum (12 months, for example). And again, you might have to end the program once you start making steady income.

      Hope that helps, and good luck!

  • Hi Thomas,

    Like previous posters have mentioned, your advice and article have been so helpful and bring up many valid points. Thank you for your insight. I currently owe about $49,000 in loans with the provider Nelnet. I have 3 groups of loans (A with a 3.4%, B with a 6.8%, C with 5.41% interest). I have been paying loans for about 6 months now and am on a graduated repayment plan. I have a steady job at the moment, but it is not full time. The loan provider applies extra money put towards a payment towards the interest first, rather than the principal amount. Based off of what I read, would it be best to try to pay more than the monthly payment towards the loan group with the 6.8% interest first and try to do bi-weekly payments? I’d appreciate any assistance you could offer.

    Thank you,

    • Thomas Bright

      Hey Kim,
      Glad you found the article to be helpful–and thanks for commenting. Yes, the method here would have you pay the 6.8% group first. Being able to pay more than the minimum payment is really the best thing you can do, and if you can split the payment up to be bi-weekly, then that’s even better.

      Good luck!

  • Hello Thomas,

    First of all, I wanted to say how helpful this post is! Your calculations are great for helping borrowers to understand the repayment process. Now, here is my situation:

    I had taken out a total of around $35,000 (I know, small potatoes) in federal loans for my undergrad degree, which I completed in May 2014. I was fortunate enough to get a career in my field between earning my Associates and Bachelors degrees, so I was able to make some early lump sum payments. My loans just went into standard repayment back in December of last year, with monthly payments of $185. I opted for auto-debit payments that lower each loan’s interest rate by .25%. I am still able to put a good portion of my extra income toward lump sum payments, so I am really aiming for paying off these loans within this first repayment year. My question is, in what order should I most efficiently go about paying off the rest of my loans?

    Group D
    Loan 8 – $1,356.70 IR: 6.25% (with the .25% IR deduction)
    Loan 9 – $3,373.05 IR: 6.25% (with the .25% IR deduction)
    Loan 10 – $4,650.66 IR: 3.35% (with the .25% IR deduction)

    If I followed your method, I’m guessing I should start with Loan 9, Loan 8, then Loan 10. However, you may have different ideas about this particular situation.

    Thanks in advance!

    • Thomas Bright

      Hi Peg,

      Glad you found the article helpful–and thanks so much for commenting! Your plan of attack here sounds great, but I suggest you at least consider paying off loan 8 first. When the interest rates are the same, the CFPB recommends paying off the smaller account first. I’m in agreement with that, because it can have credit score benefits and just create general stability. Best of luck!

  • Sharon

    Mr. Bright,

    First of all, thank you so much for all your help and guidance.

    I just graduated this year from university and have $15k in student loan (Stafford) debt. ~$2500 of this is unsubsidized, including accrued interest (6.8%). I am currently in the grace period but I’m wondering if I should use up all my savings to pay off the $2500 ASAP to get a head start on my payments. I’m living at home (and plan to stay for a while) so I don’t really have to worry about many other expenses now. I’m not employee yet but I anticipate a steady income within a month or two.

    Also, I don’t know how aggressive I should be with my extra payments. I’d like to save for the future, but at the same time, it’d be nice to pay off my loans as quickly as possible. I’m not sure how to find a good balance between these two goals. Is there a point where someone could possibly be dedicating too much of their income to student loans?

    Lastly, let’s say for example, that my minimum payment is $152. I decide instead to pay $400 monthly. If I read correctly, it’d be better to pay $200 bi-weekly rather than paying $400 at the end of the month?

    Thanks again!


    • Thomas Bright

      Hi Sharon–these are all great questions and it’s great to hear that you are making a game plan already! If I were you, I would want to make sure I had some savings set aside until I got a full time job. You might consider making some small payments on the unsubsidized loan, but it’s also not a bad idea to avoid paying anything toward them until you’re employed. Once that happens, you will want to evaluate your employer’s retirement plan. Do they offer a 401k with a match? If so, you want to contribute at least up to the match, even if that means you don’t pay as aggressively toward your student loans as you could. Compound interest in a retirement plan tends to outweigh the interest saved on low-interest student debt. That said, once you are saving some for the future, there is nothing wrong with attacking those loans, as doing so can bring financial stability and help improve your credit score. You will have to more or less determine the balance of debt repayment/saving that’s right for you, but are definitely right to include some saving in your strategy. And yes, you are right about the bi-monthly payments. Best of luck to you!

  • Colleen

    Hi Thomas,

    Here’s some clarification on my previous question:

    Group 1
    Loan A: $3246.50 @ 5.350%
    Loan B: $1404.41 @ 6.550%

    Group 2
    Loan C: $977.97 @ 4.250%
    Loan D: $6003.81 @ 6.550%
    Loan E: $2314.20 @ 3.150%
    Loan F: $5221.61 @ 6.550%
    Loan G: $3694.75 @ 6.550%

    Should these be left in bundled groups or should I request separate accounts for each loan?

    Thanks for your advice!

    • Thomas Bright

      Hey Colleen,

      Great (and interesting) question! I had never thought about what, if any, impact breaking the loans apart could have on your credit report and score. That’s definitely worth some further research, and I’ll report back if I find anything. For now though, here’s how I think this is supposed to work. You should be able to tell Great Lakes that you want to pay off Loan B (for example) without needing to break up the group first. In other words, they should be able to optimize your payment, according to the strategy here, without fundamentally changing the way your loans are reported. So because I don’t have a firm answer to your question, and your credit score is already very good, I suggest moving forward with that approach, as it should serve your needs. If you find out any more infotmation about how this works, please let me know and I’ll do the same.

      Best of luck!

  • Colleen

    Hi Thomas,

    I’m almost 2 years into paying my student loans. I have 7 loans, with varying balances (between $978 to $6004) and varying interest rates (between 3.150% to 6.550% ) with Great Lakes bundled into 2 groups. My lender’s website notes I can request these all to be separated. My credit report currently shows 2 loans (the two grouped loans). Is it in my best interest to keep them grouped or should I consider separating them? I know separating them would increase the number of loans on my credit report but I’m certain I could get one of the small balance 6.550% loans paid off right away. I’m not sure of my best route to paying my debt of faster but without hitting my credit too hard. I currently have a 764 FICO score which I don’t want to jeopardize. Thanks!

  • Michelle


    Reading the above comments I have found more information here than on most sites I’ve visited. I do have one question that I can’t seem to find an answer for anywhere and was wondering if you might be able to help. I have about $55,000 in loan debt at an interest rate of 6.55%. I can only afford the extended payment plans but at the same time, I can afford to make more than the minimum payment. My extended level payment is $384 per month and my extended graduated payment begins at $306 per month and runs $321, $337, $354, $372, $391, $410, etc. I am able to pay $400 per month right now and was wondering which method would be better. Right now I’m using the level method. My question is… would be paying toward the graduated better since I can pay a lot more than what is required, would that drop my principal faster or would the level be better since the amount due doesn’t change.

    Thank you.

    • Thomas Bright

      Hi Michelle,

      I’m going to assume that there is no penalty for overpaying and that doing so won’t disqualify you from the programs. I would want to be absolutely certain of that before moving forward. Based on what you’ve told me, I would lean toward the level plan. The reason is that you can still pay $400 per month, without the fear of having those payments go above what you can afford. Of course, we hope that as time goes on you will have more income available, and can increase the payments to, say, $500, but with this method you won’t have any pressure to do so. And, for the short-term the level method is more efficient and allowing you to tackle the debt more quickly.

      Good luck!

  • Russell

    Thomas: I just posted a question. I forgot to include my email address.
    Now I’ve included.

  • Russell

    Hi Thomas, Excellent insight provided – I sincerely appreciate all your helpful tips!

    I have several Parent Plus Loans for my two kids which are presently in deferment until late 2016.
    They graduate in May 2016.

    Just for rough numbers:

    Loan 1 $35k 7.9% ~$5.1k accrued interest
    Loan 2 $34k 7.9% ~$6.5k accrued interest
    Loan 3 $26k 7.9% ~$5.6k accrued interest

    There is also another 6.4% loan too, but I don’t have any payments required during this phase and as you advise, I’m requesting my payments are placed on the highest interest rate loan (focusing on Loan 1).

    My post is specifically to learn how to optimize repayment during the deferment period,
    especially as there is no capitalization of interest during this period, i.e. interest only accrues daily on the principal balances.

    Thus, should I continue to focus only on Loan 1 so eventually I can start lowering the principal? That would make the most sense such that I could lower the daily interest amount accruing on Loan 1.

    My loans are through Great Lakes and their agents claim that I can direct my payment (they use a “token” system as loan identifier) to a specific loan. Thus, once I get ahead of the ~$5k+ interest, I could then start “chipping away” at the principal.

    However, as the other accruing interest on Loan 2 and Loan 3 will eventually be “capitalized” when my loan goes officially into repayment, I’m confused if there is an overall benefit achieved by only paying on Loan 1.
    Wish I could find the proper formulas and process the numbers to see quantitatively, but have not been able to find such references.

    A separate topic I haven’t seen anyone mention – I often receive 0% credit card offers. I”m fortunate to have a solid credit score. I know that there is typically a 3% service fee, but often I have a 12 month window to repay. I’m responsible to manage the repayment w/o inducing any credit card balance beyond the grace period. Would it not make sense to take “small chunks” out of my 7.9% Parent Plus loans with 0% offers? I would effectively be substituting a higher interest rate (minus the service charge) for a lower rate. I would do this in parallel to my other payments – plus if I do this during deferment, I could also focus on Loan #1 and “plugging the leak” of the accruing daily interest…

    Would welcome your expertise and comments.

    • Thomas Bright

      Hi Russell,

      Great question–thanks for reading and commenting. I think this situation looks more complicated on the surface than it really is (if I’m understanding the details correctly). Long story short, since all your loans have the same interest rate, the order in which you pay them doesn’t matter at all, in terms of efficiency. Capitalization just means that the interest will get added to the principal at some point, but that where you choose to pay off accrued interest now won’t matter. Sure you can lower how much interest will accrue (and that’s a great thing), but how you divide that payment up between the three loans won’t matter at all, because the change across the three balances will be relative. Hope that makes sense!

      As for the question about credit card balance transfers–that is certainly a tempting course of action. That lower interest rate could end up saving you a lot of money. Lots of people go down that road and have success, but you have to be extremely careful. All it takes is one or two slip ups and the interest rates on those credit cards will come back to haunt you. Before you take that approach, be sure to look into traditional refinancing. There are many companies now who offer low interest rates for that to people with good credit, and those loans might have better safety nets than the credit cards.

      Best of luck to you!

  • First, thank you so much for this article! It was very helpful and I am now using this strategy to pay off my loans.

    I had a question about loans getting bundled into groups:

    I have two loans bundled into a “group”, one for $1000 and another for $4000, they have identical interest rates. Is there any benefit to me contacting the loan provider to say “I want all my extra payment to go to to the $1000 loan” and eliminating that one quickly? They currently spread the extra money between the two accounts.

    I read this article last month and am refreshing myself on the ideas to make sure I’m not forgetting anything. I thought I read something previously about this topic but am having trouble finding it again now. Sorry!

    Thanks again for this great article

    • Thomas Bright

      Great question Billy! While there is no mathematical difference in how you pay those off, I recommend doing exactly as you describe and asking them to pay down the $1000. It creates a more stable situation for you (one less open account) and can even provide a boost to your credit score.

      Best of luck!

  • I’ve found that the snowball method is best in general. I did actually take into account the fact that by paying off a smaller loan with lower interest that I would also boost my credit score by lowering my overall debt to income ratio. Then loan #3 would be the next highest interest rate, despite the fact that the balance is lower than loan #4. You can set it up in a spreadsheet to check the math. It’s a great feeling to plug in the information and see just how long it will take with your payments to rid yourself of debt.

    Right now I’d say the hardest thing with being underpaid is dealing with all the people blaming you (for trying to better yourself) while ignoring the fact that the banks started with the Recession to begin with. Ironically students who worked their butts off were forced to bail out banks and the banks demanded everything be on their terms. Frankly we need legislation gutting the banks. The morons whining about the younger workers are the ones who could work one summer and pay for two semesters of college or their parents would help them get a job. I know of very few students who can get jobs for the summer, let alone keep them during college since retail has so many people scrambling to make anything at all. It’s a diseased system and yet the government used to fund public education – and the people who took advantage of it claim it’s a bad idea!

    I also recommend moving so much out of your account into one that you keep just for savings because saving anything I can scrimp together has always worked for me. Make sure that is your fund just for emergencies and if you want a vacation use rewards cards to get something back by checking your spending habits FIRST then going to see if there is a credit card out there you can use. I use the money from a cash back credit card to split between savings and student loan payments for example. Points for another category will go towards my first vacation. It will take awhile but by having a stellar repayment history and a steady line of paid of loans I may do better negotiating deals in the future.

    You can either let the system work you or you can work the system against itself. I opted for the latter and will pay off two loans this year and be well on my way to saving for a vacation, retirement (already pulled X% before I get my check an my employer matches it), and for emergencies. This site does well to explain the snowball method but I think the spreadsheet is better. Plug in your numbers, check how much extra you need to pay per week every month to knock down your debt, then look for other ways to make money. That visual feedback is a powerful motivator and I wish everyone the best with their repayment.

    • Thomas Bright

      Thanks for commenting and sharing your perspective, Sarah!

      The snowball can definitely be a powerful tool, and it sounds like that method has definitely helped you stay motivated. You make a great point about the credit score boost too. Since that’s a tangible improvement you can see as you go and it helps you save money in interest, that could be a good reason to opt for the snowball in some cases. Glad to hear that your repayment is going so well and you are saving along the way.

      Keep up the awesome work!

  • Daniel


    Thank you for the article – very informative. I have a question regarding forgiven interest on a loan. I have two loans, one subsidized and one unsubsidized with the same interest rate. They are about the same amount. Any interest I haven’t paid on the subsidized loan is forgiven at the end of the month. I’ve been spending a bit each week and then one slightly larger payment once a month with auto pay. I’m wondering with this in mind, should I make one large sum payment at the beginning of each month instead?

    Also with both loans being about the same amount and interest rate, should I continue to pay on both at the same time or focus on one?

    Thank you

    • Thomas Bright

      Hi Daniel,

      I want to know how your unpaid interest is forgiven each month on the subsidized loan – can you explain that arrangement to me?

      As for your questions–Yes if your interest is forgiven on the last day of the month, you would want to make your payment as early as possible so that you put a dent into the principal without paying interest unnecessarily. Note: you might need to keep in mind whether this forgiven interest is taxable.

      To your other question–it won’t really matter how you approach that too much. Paying one off in full can perhaps help your credit history and can also provide some general stability (one less account to your name). But it sounds like either way is equally efficient in your case.

      Best of luck!

  • Andrew

    I have just developed a plan to pay over 300,000 dollars in medical school loans with my wife, and I used the basic same basic premise to compare plans. Paying off her high interest loans first after the minimum payment is a savings of 10’s of thousands. My question has to do with my part. I will be paying a significant amount (about 2000 a month on top of hers). I definitely want these repayments reflected on my credit score because it will show over 100k in loan repayments when all is said and done. I also do not want to co-sign these large loans in case something should happen to my wife, leaving me with the debt. I think the best solution would be to find a creditor that would only do a hard credit check on the first loan, and allow me to borrow 5000 or so at a time, and pay it back very quickly. It would be best for the credit report if all these loans were considered separate entities without a hard credit check every time. Do you have any thoughts or advice on this plan in the making?

    • Thomas Bright

      Hi Andrew,
      I don’t think I fully understand the distinction between your loans, her loans and the loans you plan to take out. Or maybe I don’t understand the timing (have you finished school, or are you starting school?). The process of getting a lender to give you a big loan in small increments, based on one initial credit check sounds like a good deal for you. But, from their perspective they won’t know the status of your credit standing when you come back to take out the next $5K, so I imagine it would be in their best interest to do another credit check. Again, I don’t fully understand, but if I’m following you then I don’t think it’s possible to get multiple loans based on one credit check, at least not to the extent you are thinking.

      Best of luck!

  • Thoma, great article!

    I am going to vent for a moment: my ex skipped the country and left me on the hook for her unsubsidized student loan ($20K, 8.25%) that I co-signed for that went into repayment 1/12/2010. Hoping that she would eventually come back into the country and resume HER debt one day and minimize my payments the 1st year paid 1X monthly minimum, 2-4 years I paid 2X monthly minimum, 5th year (2014) I paid 2.5X monthly minimum. I have now given up on her ever coming back now and just decided to pay off the remaining balance. I just recently calculated the 5 years of payments and of the $19,566.80 paid, $9,254.10 was interest leaving a balance of $9,818.60. Because I decided to stop this insanity and pay this off, all told I paid out close to $30K for a $20K student loan.

    How in the world is it that people have an easier time financing and purchasing a car than paying for their education? In my mind this is no better than loan sharking. How can anyone think this is a fair and just way for student to get a college degree?

    • Thomas Bright

      Joe, no worries for venting. Thanks for stopping by, reading and commenting. Sorry to hear that you had to pay someone else’s debt, but kudos to you for caring enough about your own credit to do so. It is pretty wild how much college can cost once we factor in interest, and you’re right–it’s hard to believe that cars, and even mortgages, are more consumer-friendly. Here’s to hoping for a better system moving forward!

  • Hello and thanks for a great article! Is the sample letter provided to loan service providers still relevant or is there an up to date one? Also, do you know of anyone who has used this letter and the service provider has done what the letter stated to do? I just want to make sure that the extra money that I am sending is going to where I want it to go…..

    • Thomas Bright

      Hi, glad you found the article helpful! Yes, the letter is still relevant. The CFPB has released some new letters, but those serve different functions (like communicating with private lenders). And yes, I have heard and read about this making a difference for people. In my personal experience, lenders were already applying my payments how I wanted, but using the letter can help ensure that things are being done in your favor. Best of luck!

  • Additional info to above question: after reading all of the posts for the past hour, now I am wondering about the 20,500 principal. I see I actually have 3 loans & the Great Lakes statement reads:
    subsidized principal @ 3.86% $1,365.00
    unsubsidized principal @ 3.86% $6,115.00 and @6.8% $13,000.
    Accrued interest $1848.51
    Total $22,348.51
    Since I have this great aunt paying $200 and no payments are due yet, should the payments be directed to only one of the loans?

    • Thomas Bright

      Aha, just seeing your other comment. Yes, the most efficient repayment will be to put all funds toward the account with 6.8% interest. Once payments are due, you’ll need to pay all the minimum monthly payments and then apply extra toward the account with the highest interest rate at that time.

      Good luck!

  • Question: my undergraduate direct unsubsidized student loan is currently in deferment since I am in graduate school full time. I will not need to take out any more loans, and do not need to begin payments until 11/19/2019. The principal is 20,500 with interest already accrued of 1,848.51. My aunt wants to begin making early payments for me. I don’t really understand how the interest works. She has already started to pay $200 a month while I am in graduate school. After 12 months, she will have paid $2400. Does this mean that all the interest will have been paid, & then the $200 per month will begin paying down the principal? If this is true, I calculate that she will have paid an additional 10,000 over the next 4.5 years while it is in deferment, so that in 5 years when I need to start actual payments, the loan balance will then be only $10,500. Am I correct?

    • Thomas Bright

      Great question, but the one piece of info we really need is the interest rate. I ran a hypothetical through this calculator: with 6.8% interest, and it looked like the monthly payment required to pay off the loan in 10 years is $257.

      That said, student loan interest accrues daily, so at $200, you will have a bit more of an uphill battle against interest. I would play around with the tool I referenced, using relevant numbers, to get a better sense of expectations.

  • Kayleigh

    This may have already been answered (and maybe I’m just not understanding this all correctly; it’s a bit confusing for me) – but I’ve started trying to pay extra each month on some of my loans, and emailed my loan provider about how that payment will be applied.

    They responded saying that paying extra will result in a lower monthly payment the next month, but isn’t that defeating the purpose of paying extra this month? I want to put more money than required towards my loans each month to pay them off faster. Is this possible to do without my provider simply putting my extra money towards next month’s payment?

    • Thomas Bright

      It should be! Because interest on student loans accrues daily, you want your payment applied as soon as possible! Now, maybe they are applying the payment as soon as they receive it, but then giving you a discounted payment for the following month. On the surface, that is a fair deal, but it also helps them make more money by encouraging you to pay less the next month. I would call them to ensure that they apply payments as soon as they receive it, and from there you just need to keep paying extra as you are able, even if they say you owe much less because of a big payment in the prior month.

      Hope that makes sense, and good luck.

  • Nate W

    Hi Thomas,

    Thanks for the article, it’s been very helpful. I’m currently paying more than the minimum on my student loans biweekly through Great Lakes and I paid off all the originally-accrued interest a long time ago (so now each time I pay, a little bit of interest will have accrued but it resets to 0 with the payment). I want to sign up for Auto Pay for the .25% interest rate reduction (I’ll still make an extra payment each month equal to the Auto Pay amount) and I have two options:

    1. I can choose to have each payment applied to principal first, or
    2. I can have it apply to accrued interest first

    My question is, based on my situation will it make a difference which one I choose? It seems like if I pick the first option, the extra accrued interest when I make my extra payment will reduce the amount of it that goes toward principal enough to offset any benefit the auto-payment may have had. Thanks for any advice!

    • Thomas Bright

      Great question Nate. And yes, the way those options are presented does seem a little confusing. I wonder if by “accrued interest” it means on a different loan? For instance, if you wanted to pay loan A (which has the highest interest rate) and are less concerned with loan B (which does have some accrued interest), you would want to pick option 1 so that you maintain efficiency. Or, maybe there is another situation they have in mind here.

      In either case, it seems like paying down principal would always be advantageous to paying down interest. However, nearly every student loan website says explicitly that payments are put toward fees, then interest, then principal. Perhaps for the best clarification here, you should call Great Lakes directly to see if they can better explain these two options.

      Good luck!

  • Joshua

    Mr. Bright,

    Thank you so much for your help with the comment / question that I left on the “debt ladder” article. I’m still having a bit of a conundrum and hope you can help me out. My wife’s student loans are currently in “income-based repayment status,” and her next official loan repayment due date is not until September of 2015. However, I know that interest still accrues daily. There are several different loans on her account, and according to your advice, I will be targeting the highest interest rate loans first. My question is, do I neglect the other loans completely and allocate all my money out each month into the high interest loans or should I pay at least a little bit to every loan, but the majority to the high interest loans? Because her due date isn’t until September, there is no “minimum monthly payment” yet. Thanks again!

    • Thomas Bright

      Good question. If there isn’t anything due, then the most efficient thing will be to put all funds toward the account with the highest interest rate (not paying anything toward the others). Admittedly, though, I don’t know as much about what happens when you make extra payments to loans that are IBR. I would be sure to call the servicer on the loans first to make sure that you won’t jeopardize IBR status at any point by following through with this plan. Best of luck!

  • Question: I have a consolidated federal loan and on my bill it shows subsidizeded and unsubsidized portions. If I happen to be able to pay a large lump sum which do I pay and will the payment be reduced? I am on ibr. Will making a lump sum make me ineligible for the ibr plan?

    • Thomas Bright

      Great questions, but the specifics here are a bit complicated. For instance, when the loan is consolidated, do you even really have the option to pick which loan group you pay within the consolidation? I recommend calling your servicer with these questions (including about the IBR), as they will give you the most reliable information. Best of luck!

  • I have about 22,000 in student loan debt, right now Im in a ibr plan.I have a bunch of different smaller loans ranging from 5.5-6.5% interest. All together they equal about 22,000. I only pay $96 a month. My loan amount seems to keep getting higher. The most I can afford to pay per month is about $150. Will I ever pay this off, what is my best course of action?

    • Thomas Bright

      Great questions,

      The hope is that you will start to earn more income and be able to pay these off more aggressively in the future. However, the IBR protects you by forgiving any remaining amount after 25 years. Your best course of action is to keep working and saving and trying to earn more income. But if that’s not realistic, at least you have a fallback through the IBR.

  • Thomas,

    Thank you for your great article. I wanted your opinion on what I should do. I have two loans, one unsubsidized and one subsidized. My subsidized loan is around $13,000 while my unsubsidized is around $21,000. Both have the same interest rate, 7% and are on deferment right now. What would be my best option, should I put more money on the larger loan or smaller loan? I was thinking I should put more on the unsubsidized to make the interest payments lower overall while in deferment but then I was thinking I should put more on the smaller subsidized one to get rid of one loan. I don’t know what to do. Could you provide some input, please?

    Thank you so much!

    • Thomas Bright

      That is a tough one. Because you will save a little bit in terms of accrued interest, paying the unsubsidized might be the way to go. But you are right, this will mean that it takes longer to pay one off entirely–so you’ll have work extra hard to keep a psychological edge!

  • An outstanding share! I have just forwarded this onto a friend who
    had been doing a little research on this. And he in fact ordered me lunch due to the fact that I stumbled upon it for him…

    lol. So let me reword this…. Thanks for the meal!! But yeah,
    thanks for spending the time to talk about this subject here on your

  • Hello Thomas. This article is the best that I have found – and I have been looking and reading a bunch. I like concrete math when considering these scenarios.

    I just want to make sure I understand something specific. I have six loans of various original amounts but they all have the same interest rate. Three are ‘subsidized’ and the other three are ‘unsubsidized’.

    Since all six loans are currently in ‘repayment’ status, mathematically, it doesn’t really matter which I pay first, although there is some wisdom that points towards the smallest amounts first. However, since subsidized loans carry extra benefits it makes sense to leave them for last and focus on the unsubsidized loans first.

    Additionally, there is a possibility that I will go back to school for my Phd. at some point in the next couple of years. If I did that, all my loans would go back into deferment status which would mean that the interest would stop accruing on the subsidized loans while the interest would continue building on the unsubsidized loans. Therefore, if I pay down the unsubsidized loans now while I can, I will save on accrued interest while I am in school again.

    So all things equal, I should pay unsubsidized loans first, right? Bonus question: All else being equal, should one pay an older loan or newer loan first?

    • Thomas Bright

      Chad, good questions, and it sounds like you have a good grasp on this. Yes, in this case it seems like paying off the unsubsidized loans is a smart move. As for older vs. newer loans–I’ve honestly never thought of that. Once you account for interest etc. the only real factor might be credit reporting. You often head that “age of account history” is important in the scoring model. That said, with installments loans it seems to matter much less. I guess the gut feeling is to pay the older loan first, but I don’t have an explicit reason for feeling that way 😉

      Good luck!

  • Kevin G

    Hey Thomas,

    Great article! I have a question that you can hopefully help with. I have $5,000 that I can pay towards my loans but I need help deciding which loan should receive the $5,000 payment. I believe I have a couple of options and need your help. None of these loans are in “repayment” but they ARE currently accruing interest and some are in the 3 month grace period where payments made ignore interest and are applied directly to the principal:

    Loan 1- $12,545.11 with interest rate of 6.41% (currently $839.31 interest accrued)
    Loan 2- $39,591.48 with interest rate of 5.41% (currently $1,569.66 interest accrued)
    Loan 3- $2,981.19 with interest rate of 7.21% (currently in 3 month grace period with $60.06 interest accrued)
    Loan 4- $20,122.65 with interest rate of 6.21% (currently in 3 month grace period with $349.20 interest accrued)
    Loan 5- $484.35 with interest rate of 7.21% (currently in 3 month grace period with $9.08 interest accrued)

    Which of of these loans should receive the $5,000 payment? Thank you for you help!

    • Thomas Bright

      Hi Kevin, good question! If you want your plan to align with the advice in the article, then you would pay Loan 5, Loan 3, and then the rest toward Loan 1.

      Good luck!

  • Thanks for this info. It is super helpful. I’m wondering what the best option is considering the following scenario. I’ve done a ton of looking into this, but can’t seem to get advice specific to my situation. I’m hoping you can help. I have Federal loans (through Navient) totaling just under $40,000 at 4% fixed. I have 207 months left and am paying $259.02/month. I also have private loans (through Discover) totaling just under $7,500. The interest rate is 2.75% variable. I have 87 months left and am paying $91.66/month. I am thinking of using $7,500 in newly found money to help pay off my loans. My question is: which loan should I put this money towards? People say pay off your private loans first but in this case my private loans have the lower interest rate. Lastly, if I put it towards the Federal loan should I opt to decrease the amount of payment or the length of the loan? Thanks so much.

    • Thomas Bright

      Great questions Kate.

      You are right, your private loans actually do appear to be more manageable in this case. However, they have a variable interest rate. When will the rate rise, and what will it rise to? Those will be important factors to consider in your decision.

      You also need to remember that federal loans have safety nets, whereas private loans offer very little assistance to borrowers who are struggling. From that perspective, it’s sometimes better to take the path that is less mathematically advantageous in order to make sure you have stability and are ready for any emergency or other undesirable situation.

      If you do pay the $7,500 toward the federal loans, I’d be a fan of doing it all in one chunk, which will cut down the length of the loan significantly. If you really need to get your monthly payment lowered, then paying off the private loan would do so by almost $92, which would probably make a huge difference each month.

      Best of luck!

  • Is there any way to negotiate to pay a lump sum to reduce the total amount of loan repayment? Looking online, it seems this option is only available to loans in default. I have good credit standing, but still about $40,000 in loans.

    • Thomas Bright


      I think as a rule this will only work for defaulted loans, like you mentioned. If you’re making timely payments, the lender is going to want to keep those going as long as possible, so that they can make the interest.

  • Hey Thomas. I am a senior projected to graduate this spring. If I have a private loan from salle mae for $8000 from from freshmen year can I use my subsidized loan from this year to pay it off? I was just wondering if this would be a good idea since the subsidized loan won’t have any interest until after I graduate and the salle mae one does. The salle mae loan also has a higher interest rate.

  • Melissa

    Hi Thomas! Thank you for taking the time to write this article. This information has really motivated me to get a plan together for paying back my student loans! I wanted to know if you could clear up one point of confusion for me regarding loans with the same interest rate. Do you put excess funds towards the smaller or larger loan?

    In the article you made the comment “if you have two loans with the same interest rate but different totals… from a perspective of financial stability, it could be good to close one account, and you will achieve this by paying the smaller loan first.”

    Later on in the comment section you state, “Since all interest rates are the same here, you will want to look at each loan based on principal + accrued interest. Rank these in order of highest to lowest and pay the highest first”.

    I was planning on following your first piece of advice and paying more towards the smaller loans (within a group of loans with the same interest rate) to close those accounts after paying off my highest interest rates.

    Looking at my loans below, I would pay the minimum on all my loans and put excess funds to Loan A until it was paid off, then to Loan B, then Loan C and so on. Does this seem appropriate?

    Loan A (Salle Mae/Private) – $10,107.40 @ 10.25%
    Loan B (Salle Mae/Private) – $9,929.46 @ 9.25%
    Loan C (Salle Mae/Private) – $12,194.87 @ 8%
    Loan D (Salle Mae/Private) – $12,119.34 @ 7%
    Loan E (Federal/Unsub) – $2,948.76 @ 6.8%
    Loan F (Federal/Unsub) – $4,273.80 @ 6.8%
    Loan G (Federal/Sub) – $8,737.53 @ 6.8%
    Loan H (Salle Mae/Private) – $8,854.01 @ 6%
    Loan I (Great Lakes/Private) – $7,352.67 @ 3.48%
    Loan J (Salle Mae/Private) – $7,824.32 @ 2.25%
    Loan K (Salle Mae/Private) – $9,021.76 @ 2.25%

    Thank you for your time.

    • Thomas Bright


      Thanks for catching that inconsistency! What I say in the article is accurate, so you can ignore the comment. I was a little confused about that myself soon after writing the original article, and I’ve updated it accordingly over time. When your loans have the same interest rate, it is best to pay extra toward the smallest loan, and that’s even the advice given by the CFPB.

      And your plan is right on! Good luck!

  • This was a great post and I really appreciate your help.

    I have several loans with FedLoan Servicing. Loans range from $8,000 to $19,000 and the interests rates vary from 5.4% to 7.9%. I’m capable of making the payments via the standard 10 year repayment plan but I’m wondering if it would be worth it to use the extended repayment plan and make the minimum payments on each loan and then take the extra money (since payments are lower on the extended repayment plan) and use that on the loan with the highest interest rate to pay it down the fastest?

    Also, if I have two loans at 7.9%, would it be more beneficial to pay off one loan entirely before putting funds towards the other one or should I pay them down equally?

    I really appreciate your help!

    • Thomas Bright

      Hi Jill,
      More great questions here. I actually really like the way you are thinking with the graduated repayment idea. If you were able to do that and then pay down the high interest accounts more quickly, you could earn some good savings. For your second question, there will be no savings difference either way, but try to pay the smallest one first. That way, you get a credit boost and something that’s just more manageable overall. Good luck!

  • Couple additional questions:
    1. Is it typical for lenders to skip an autopayment if you are paid ahead? I suspect that just happened to me and definitely was not what I wanted to have happen. I got no notices of a missed payment but saw I was a few bucks paid ahead. If that’s what they did, do I have to tell them in writing to keep applying them whether I’m paid ahead or not? Seems like a clever way for them to increase interest and keep me in repayment longer.
    2. I have five federal loans (dispersed during grad school) collectively with Great Lakes, all with same interest rate but differing principal amounts. It appears these are lumped together now (in repayment) into one “account” yet it still says there are 5 loans. Are they still separated in a sense such that there might be any credit score benefit to try to pay off one of the loans and direct payments that way? Obviously no dollars and cents difference either way. Or are they not actually separate and the loan won’t be considered paid off until the whole balance is 0? Perhaps I just want that sense of accomplishment that one “loan” is wiped out. Ha!


    • Thomas Bright

      Fantastic questions Brett!
      To #1, you are absolutely right that they could deepen their pockets that way. If you want to have the payments continue, I would be sure to communicate that. In my experience, the servicer keeps the payment going even when paid ahead.
      #2 is a great question as well and another good example of how their bundles can be confusing. I’m almost 100% confident that each loan is “separate” and paying one off could have a could psychological benefit and potential credit score benefit. I’d suggest checking your credit report at to see if each loan shows up there individually.

      Best of luck!

  • Hi Thomas,

    Thanks for all of your help. Quick question: My employer is offering me a student loan repayment incentive. He is willing to make a lump payment or monthly installments. Given that I have over $8000 in accrued interest, would it be better for him to make a lump payment so I can get into my principle quicker or should I ask him to make monthly installments (which will allow me to make more than the minimum payment)? Really appreciate it!

    • Thomas Bright

      Since interest grows daily, a lump sum is the better choice and will save you the most in the long-term.

  • Thank you so much for this post! It makes sense and I really appreciate the break down. My question is I have federal subsidized and unsubsidized loans through one servicer, but they lump both of them together in one payment, though they have different interest rates. They are as follows:

    $10000 @ 3.400%
    $6771 @ 3.860%
    $7242 @ 6.800%

    Given Great Lakes lumps the payment together as one, how would I increase the payment on the amount with the higher interest rate? Thank you.

    • Thomas Bright

      Hi Allie,
      You would simply mail the CFPB letter template to the lender (or discuss it with them explicitly over the phone). You would then pay extra toward the loan group. What should happen from there is that you will see that each loan within the group received the minimum monthly payment. The 6.8% interest loan would then receive all the rest.

      Good luck!

  • Haleigh

    Hi Thomas,

    First off, thanks so much for this resource. I recently decided to withdraw from a graduate level social work program after realizing the amount of loans ($100k) I’d be left with after graduation. I withdrew before a 70% reimbursement deadline so most of the loans were returned to the servicer and I am now responsible for paying back a tuition debt directly to the school ($9k). At first I was very stressed about my arrangement with the school because of the lack of paperwork, payment plan options, sense of security etc. The bursar’s office basically gave me two options; pay it off “formally” (one year, $600 monthly payments) or “informally” pay what you can monthly, stay on time, we’ll reevaluate every 6 months and it “shouldn’t” go to collections. Eventually, I’m told, the school decides if the arrangement stays between the school and student or if a third party servicer takes it over, at which my repayment options may broaden, but the debt will then be “on the books” and can be seen by creditors etc.

    I am now back in my home state in a much more affordable part-time grad program and just received notification of loan information for upcoming disbursement. I currently work full time and am currently able to pay $150 monthly back to this previous school. The previous school’s staff and my loan servicer both suggested that any federal monies I receive through my current program if possible, could be applied to clear my debt with this previous school and thereby transferring my ‘loans’ all to one place. I’d be adding about $9k onto my current grad program expenses. The federal loan policies restrict using the loan money for any expenses not directly/indirectly related the school that approved me for the loan, so although I’m getting this advice, I’m not sure it’s a legitimate use of the loan $.

    Anyway, my questions are should I keep this amount with the school and keep moving forward with trying to knock it out (no interest, but less security) directly with them or pay it off entirely with current federal loans, clear any obligation to the school and then focus on paying loans back albeit with interest. How common are these arrangements with schools? Why wasn’t all of the debt rolled back to the loan servicer instead of my having to pay back the school directly?

    Thanks again and sorry for the book!

    • Thomas Bright

      Great question! Although I have to admit that I have never heard of a situation quite like this before. My biggest concern would be that you could get in some sort of (legal) trouble, by attempting to use a federal loan to pay off the original school. I would be very careful there.

      I also understand that the informal option doesn’t seem very legitimate. Can you get the arrangement in writing somehow? That would give you peace of mind. In my opinion, the best case scenario might be to continue paying the $150 per month to the original school and then just taking out enough new loans for your new program.

      Good luck1

  • Hi Thomas,

    I am so happy that I found this article of yours! Although I wish I would have found it sooner.

    My scenario is this: I have student loans from two different lenders (Great Lakes and with a total of about $12,500 left to pay off. I am paid significantly ahead on my Great Lakes loan (next payment needs to be made in Dec. of 2016!) as well as paid ahead, I’m assuming the same, for my loan considering I’ve been making bi-weekly payments on them both for about a year and a half or more now.

    The question I have for you is this: I am going to be sending in the template to each of my lenders but I would like to know if since I am paid so far ahead do I technically not have to make another payment toward interest until I have another payment “due”?

    I feel I am still a little weary about sending in the letter to my lenders without fully knowing the process.
    Here is what I am understanding:
    I am paid ahead by a year and a half so if I send in this letter to my lenders, and they approve, all of my bi-weekly payments until Dec. 2016 will go exclusively toward my principal. Thereafter, in Dec. 2016 my payments will go back to “normal” paying interest and principal. Additionally, will I still be able to make the payments online after sending in the letter or will I have to call in my bi-weekly payments?

    Could you please let me know if my understanding is correct or explain it with a little more detail for me?

    Thank you again so much for helping all of us out!


    • Thomas Bright


      Glad you liked the article and found it helpful. And thanks for the great question. I think I see where the confusion is coming from. Even though you don’t owe until 2016, your interest will be accumulating every day until that time comes. While you aren’t “required” to pay the interest, the interest will get deducted from your payment before it goes to principal.

      Also, I don’t see any reason that you couldn’t pay online, but I would double check with the lender just in case.

      Hope that helps!

  • Hello,

    I’m getting ready to pay off about half of my student loans. Would you suggest paying off the two highest loan amounts at similar interest rates of 6.55% and 6.8% or pay off three of the smaller loans all at 6.8%? Since the interest rates are similar I didn’t know which exactly I would benefit from. Both scenarios equal about half of my overall student loan debt. All are federal loans.

    Thanks so much and great article!

    • Thomas Bright

      I would recommend paying off the three smaller 6.8% accounts. It’s the most efficient way AND you will close three accounts. This will eliminate three minimum payments, too, which will make your repayment a bit easier. Good luck!

  • Thank you for the informative article! I have a cluster of federal graduate loans all at 6.8% through Great Lakes with current principal at ~$40,000 having graduated 18 months ago. My current monthly repayment under standard repayment option is $512.95 but I have been paying $600 for over a year now. Assuming I kept paying the same $600, would it be better to break this into two $300 biweekly payments and changing to Extended Repayment (drops it to $288 minimum per month), so I could both take advantage of auto-pay discount for the regular monthly payment, limit the interest accrual by adding the second additional payment, and have flexibility in repayment if needed? On paper it would push out my loan payoff date, but if I kept to that schedule, might I be able to accelerate repayment and lower interest? Thanks!

    • Thomas Bright

      Hi Brett,
      Does the Extended Repayment give you an auto-pay discount that you aren’t currently eligible for? If not, then it might not really be an option worth pursuing since you are already paying over the minimum. I get what you are saying about flexibility, but the concern will be that you might slump into a financial laziness of sorts. By owing less, you might start paying less. It’s happened to me before, so I’m speaking from experience. Following your plan will work, but so will sticking to traditional repayment and paying more than the minimum. It’s really just up to what will work best with your financial psychology. Good luck!

  • Sharlene

    Hi Thomas! I am so grateful to have found this and I think it is great that you are still answering questions. I have read through all of the replies and none really help me. I have a loan that was consolidated from 2000 and recently started back at school to earn my Bachelor’s degree. My consolidated loans have been in forbearance or deferred for most of the time I have had them with only the bare minimums ever being paid. I get tuition reimbursement from my employer for the classes I am taking now. My question is should I use that money to pay my recent loans or my consolidated loans?

    My loans are:
    Subsidized = $2,750.00 @ 3.86%
    Unsubsidized = $3,097.70 @3.86%
    Consolidated 1 = $8,899.96 @ 4.12%
    Consolidated 2 = $17,177.48 @ 4.12%

    • Thomas Bright

      Hi Sharlene,
      Thank you for your question. If the two consolidated loans are currently accruing interest, then it will be most efficient to put extra payments toward those. However, that is the “efficient” answer. It might also be a good idea to knock out one of the smaller loans so that you will have easier monthly payments once you finish up with school. It comes down to what your needs are and how much tuition reimbursement you are receiving.

      Good luck!

  • Article is useless.

    I have an MBA and 60k in debt from both my degrees. I have a job that doesn’t pay me based on my education level. There are no jobs available right now that would fit my experience/educational background that pay more than my current job. The point is sure you can pay more than the monthly balance, duh, that isn’t rocket science, thanks for telling us something everyone already knows. With the salary most people are receiving THEY CAN BARELY AFFORD the minimum payment. Especially on private loans, which are just scam organizations like Chase anyway.

    Basically I wasted seven years trying to further myself with a higher education only to be paid less than some deadbeat loser that Obama favors.

    • Thomas Bright

      Thanks for the honest feedback Sean!

      This article is designed to help people optimize their repayment. The key is about prioritizing interest rates (more so than just paying over the minimum). I’m sorry this isn’t much help in your situation, and I completely understand where you are coming from regarding private loans. I hope that you will be able to keep working your way to a better job that matches your education so that you can consistently pay over the minimum.

      I’d also suggest reading our post on how to pay off private student loans, which might be able to help you.

      All the best,

  • Wow, Thomas!!!! Where have you been all my life? ha ha. Seriously, this article is chock full of good information and advice. I’m thoroughly impressed with your detail in the information and advice you provide, as well as your compassion in your responses. You are truly one of a kind!!

    Long story short…I’ve been paying forever on my schools loans and I want them gone and this monkey off my back for good. Made some irresponsible money choices in my younger years and I’m now playing catch up. They are consolidated and have been since 2000 and I now have $45,000 left and 17 years left on the term (was 30 years…why of why did I do that). I’ve been in pay down mode over the past few years and just recently have paid off all my credit card balances. Wahoo! My school loan (and mortgage) is the last of my debt. I’m considering refinancing through SoFi and have been pre-approved with lower interest. I make a pretty good living (approximately $100K annually) so I’ve been paying more than minimum to get ahead. However, it still feels like a long way to go and it irritates me how much money SM has made off of my bad choices.

    Here is the loan(s) I have with SM: Both at 7.38%

    $13,847.19 7.38%
    $31,232.48 7.38%

    Here is what I’ve been approved for through SoFi:

    05 year fixed rate loan at a rate of 4.625%, 4.375% with AutoPay
    10 year fixed rate loan at a rate of 5.740%, 5.490% with AutoPay
    15 year fixed rate loan at a rate of 6.625%, 6.375 with AutoPay

    Originally, I was going to do the 5 year and try to pay it off in 2-3 years (that is the plan). However, I think my payments will be a little over $800 for the five year, which I can handle, but I get nervous with payments that high when my current payments are around $456. I’m pretty much committing to doubling my payments. I’m in sales, so you just never know and I have very little savings right now. So I thought maybe I would consider the 10 year fixed which my payments would be $490ish (I think) which is around what I am currently managing…then just pay more each month with whatever I can. I could still work to have it paid off in 3 years (if possible) but it would allow a little wiggle room should my sales drop or something unforseen happens.

    My question is this….What option do I go with? I have an excellent credit score and I’ve exhausted all of my deferment and forbearance options so that would not an advantage of staying with SM. If I go with the 10 year from SoFi at 5.7% and pay more than my minimum and pay it off in five years…I would still be saving more than if I paid off the SM loan in five years. It’s difficult for me to figure out how much I am saving though. Also, the monthly payments for the SoFi loans are approximate. I’m waiting to hear back from them on what my monthly payments would be, but that is what I determined from another calculator.

    Phew….so I guess that wasn’t a long story short. Any advice, suggestions, tips would be greatly appreciated. You are a blessing! Thank you for taking the time that you do for this page. 🙂


    • Thomas Bright


      Thank you for the compliments regarding the post, and please forgive me for my delayed response. You must have jinxed me, ha! Anyways, I think you have a pretty solid plan here. Of course, it’s your decision, but I feel as though 10 year fixed rate plan is probably the way to go. Sure, you might be able to do the 5 year, but what if something goes wrong? It sounds like your emergency savings fund is not quite where it needs to be yet. Why not pay the minimum for a few months while you build up a safety net/cushion? Then, begin paying as much above the minimum as you can. 5.49% is a great deal compared to 7.38% and it will certainly make a big difference over time.

      Congratulations on keeping a good credit score that allowed you to qualify for SoFi and best of luck over the next few years as you knock these out for good! If you are comfortable with your income level and the minimum payments, you might even consider some retirement saving along the way too (although you might already be doing this). The math there can get a little funky, but it’s probably wise to set that aside as you go, even if it delays your student loan payoff a bit.

      All the best!

  • Hello – From understanding this article these are my loans.

    Currently I am in grace period – will be in grace period until 11/2/14
    4 loans that total 19,000 at 5.5% Subsidized
    6 loans that total 74,709 at 6.8% Unsubsidized

    4 loans @ 5.5 include

    6 loans @ 6.8% include

    So my plan is to pay approximately $1,500/month to my largest loans. Interest will incur on my smaller loans but according to the advice given above, paying off the loans with the higher percentage will be most beneficial.

    Anyone have any comments on this plan? I was told NOT to consolidate my loans.

    Any advice is helpful.

    • Thomas Bright

      Yes, that plan is exactly what this article suggests. As long as you can afford the payments then go for it. If you begin to have trouble, reach out immediately to see if you qualify for income-based repayment or another federal loan option.

      Good luck!

  • Mercedes

    Thanks for this great article! I have a question about which loan to pay off first. My goal: pay off my student loans as quickly as possible. I have two direct graduate plus loans. I have made extra payments so they are now have roughly the same balance. They also have the same interest rates. I am trying to decide whether I should (1) put my extra cash to one loan or (2) if i should split my extra cash between the two. I would prefer to do option 1 because I like to see when the loan amounts go down quickly, but is there a disadvantage to doing that? Will it cost me more in the long run to put my extra cash to just one loan instead of splitting it?

    Thanks in advance for your help!

    • Thomas Bright

      Hey Mercedes,
      Sorry for the late reply. From a math perspective AND a perspective of time/speed, there will be absolutely no difference on when these are paid off. No matter how you apply the payments, you will finish at the same time. It’s just the way interest rates work (it took me awhile to wrap my head around it too).

      However, if one is a good bit bigger than the other…you may want to pay the small one first. This can just provide stability and potentially a boost to your credit score.

      All the best!

  • To skip the hassle of dealing with multiple loans and servicers, you can consolidate your loans into one loan, with one monthly payment. All you have to do is fill out a “Federal Direct Consolidation Loan Application and Promissory Note” on the website.

  • Jeremiah

    Thanks, Thomas. I appreciate your advice and look forward to hearing more.

  • Jeremiah


    I’ve read a bunch of the posts above but not all of them, so I apologize if my circumstances are redundant. Amazing that you’re still responding to comments after 7 months!

    I have 5 subsidized loans with various interest rates. Summer 2012, Federal Subsidized loans were changed such that they begin charging interest during the grace period and the interest is capitalized once the grace period ends.

    2 of my loans are charging interest during the grace period, another 2 are in their grace period for 6 months, and the last has no interest for a 9-month grace period. The two loans that are currently charging interest are my lowest interest rates (3.4% and 3.86%), but largest loan amounts ($5500 each). The 6-month grace period have lower principals and equal or higher rates (4500 at 3.4% and 3500 at 4.5%), and the 9-month grace period loan has the highest interest rate but the lowest principal (1000 at 5%).

    I have the capability to pay $400-500 and I have a generous father who will match me. Given the relatively low principals that I have, it seems that there is a sweet spot between focusing on interest rates and balances for me. A loan charging 5% on 1000 would not grow as quickly in the 2-3 years it will take me to pay off all my loans as will a loan charging 4.5% on 3500. I’ve been looking around for a formula to optimize my payments to minimize the total amount of interest but haven’t had much luck. I’ve tried using Excel’s PMT, PER, CUMPRINC, and CUMIPMT, but the results I’m getting tell me I don’t completely understand what I’m doing.

    Could you advise me on what’s the best way to tackle my scenario? I assumed at first that the logical thing to do was to reduce the interest I am building up in the present, that meaning to lower the principals of the loans that charge interest during the grace period. However, it also could make sense to lower the principal balances of my higher interest loans before they even begin charging interest. It’s a seems a little petty next to larger loans, but I still want to be as prudent about it as possible.



    • Thomas Bright

      Jeremiah, great question. Thanks for reading and commenting!

      Your situation is a little trickier with the added element of grace periods. I will have to do some extended thinking on this one, but it could potentially change things. The way I see, it your loans in grace period essentially have a 0% interest rate right now. So, I can see where it would make sense to just focus on the current highest interest rate loan that’s not in grace.

      What we need to weigh is the potential of the $500 + $500 match to prevent future interest growth. Will that impact be more powerful on loans that are already accruing, or on a higher interest loan that we can keep from accruing at all?

      Hmm, let me do some more thinking on this. however, I will say that if you went ahead and paid toward the account with the highest interest rate, not in grace period, that probably wouldn’t be a bad approach.

  • Karen T.

    My loans have been in deferment/forbearance for almost 3 years but at one point I was moving and had a lot going on and I forgot to renew the forbearance, so on my credit report it says that I was late on payments for several months. However, since I’m currently in forbearance it states that nothing is delinquent. I’m finally ready to start repaying my loans (yay!) which are approximately 18K.
    I have about $900 in unpaid interest as of right now. My question is this: My husband and I would like to buy a home within the next year or two, but I really need to boost my credit score as much as possible. Can you tell me what would be the most effective way to do this, if it’s other than what you originally posted for paying them off? Will paying off the unpaid interest first help? Or would paying off any of them off one at a time in a lump sum be more beneficial, or simply making the monthly payment and have it distributed? Also, if I pay off the interest, do you think they will remove the late payments from when I forgot to renew (wishful thinking)? I’m hoping you can suggest the most effective strategy. Here is a breakdown of my situation:

    1. Sub $ 1639.58 ($63.06 interest) 4.5%
    2. Unsub $ 2380.80 ($138.38) 6.8%
    3. Sub $ 3907.00 (187.04) 5.6%
    4. Unsub $ 7336.40 (426.43) 6.8%
    5 Sub $2627.52 (134.75) 6.0%

    Thank you so much for your help!

    • Thomas Bright

      Hi Karen,
      Even in your situation, I’m still a fan of the method that is recommended in the article. What will help your credit score the most is making consistent on time payments. I don’t know 100% if you would get a boost or a neutral result by paying one off in full. But I doubt that any slight benefit from doing that (as opposed to following the method and paying on time every month) would be better than the savings in interest. In other words, I don’t think you will get a substantial enough credit score boost to make it worth it to deviate from the method here.

      Hope that helps!

  • This was very helpful! I am constantly looking for more information about paying off my loans and this was one of the best ones I’ve found.
    Here’s my story. The last of my loans have just kicked in this January. I have now been very aggressive with my payments. I’ve been paying on my three Sallie Mae loans for a while but my Great Lakes ones started. Between the two lenders I have around $60,000 to pay.

    Loan A $29911 @ 5.6% << Group of 3 loans
    ($15703 @6.55 $9611 @3.15 and $5183 @4.25)
    Loan B $5227 @ 5.35%
    Loan C $11085 @ 5.25%
    Loan D $7698 @ 3.75%
    Loan E $4331 @ 3%

    Right now my minimum is $615 and I pay an additional $800 a month. The $800 goes all to Loan A for now as I want to pay that one off first and just pay the minimum for all the rest. My question stems around that $800 because I pay it at the exact same time as my monthly payment so that none of it is going towards interest and it goes directly at my principal. Should I continue doing it that way or wait a couple weeks before putting the additional payment and pay towards the interest halfway through the month?

    Also, after reading this article I immediately emailed my lender when I read that I could tell them where I wanted these additional payments to go. I had been wondering how I could do that as I want the additional payments to go towards the one with 6.55% interest first in hopes that it will make the “group” rate go down. It currently is prorated towards all of the loans. I am constantly searching for ways to save as much money on paying these back and should be saving around $12000 in interest on my current track. I plan to have them paid off in the next 4 years.

    Thank you!

    • Thomas Bright

      That’s awesome! It sounds like you are doing a great job! To answer your question about when to pay the extra $800. DO NOT wait to make that payment. Student loan interest accrues every day, so it pretty much never makes sense to wait. I suggest you pay that $800 when the monthly payment is due OR that you try to pay it even earlier. You don’t have to pay the $800 in one sum. It might be better to pay $100 here, $200 there, etc. as the money become available. It probably won’t make a huge difference, but it will save you a little more on interest.

      Good luck!

  • Vincent

    Is it typical for a lender to raise the interest rate on other loans after paying off one loan in order to compensate for loss of profit from interest on the paid off loan, or do they keep the interest rates the same?

    • Thomas Bright

      I have never heard of that. I would think that would somehow be “against the rules.” So hopefully as consumers we are protected against that sort of thing. I guess one way to be sure is to read terms and conditions, promissory notes, etc before taking out loans.

  • Katie R

    Hi! Thank you for your article as it was extremely helpful. I do have a few questions though. I am 31 finished undergrad in 2005 and have 2 student loans that are serviced by AES, balances are $3,982 and $18,950 (both 2.75%). I recently finished grad school, have 2 loans from that, which I will begin paying back in October. I have looked on the nslds website and the balances are $20,500 and $18,232 (both unsubsidized). According to the lady at the financial aid office the interest rates on both will be 3.86% (I am not sure where she got this information from). The whole Master’s program cost $22K and I recently discovered from the students accounts office that I had not filled the paperwork out correctly in the beginning about whether I wanted the extra money to go back to the loan or not (which I did want it to go back to the loan) so they have been holding the extra $16K in an account for me and I will receive a check next week.

    In the nslds website it only lists a servicer and it is federal. I am not impressed (to say the least) with the current servicer that I have (AES). Do I ever have a choice as to who these loans go to? These are federal loans and I do not want them to be private. I thought Sallie Mae was a federal servicer. I guess I don’t understand how they become private and whether or not I have a choice in the matter.

    According to your article I plan to put the $16K towards the $20K, 3.86% loan. I will also pay the accrued interest for the smaller loan. I also have a credit card and 2 retail lines of credit that have huge interest rates (19.99%-26.99%). The total balance for all three is $1,686. I was thinking that it would make sense to pay these off completely and then put the rest towards the $20K loan. Or is it a better idea to keep it simple and just put it all towards the $20K as fast as possible and pretend I never had $16K in my bank account? I figure either way I am decreasing my debt, which is the important part, but I really want to make the biggest difference possible.

    • Thomas Bright

      Hi Katie,
      As far as I know, you can’t change servicers. There might be exceptions but not to my knowledge. To clarify about federal/private… your loans never change from one to the other. Instead, they are either private or federal when you first take them out. Sallie Mae just happens to be one of the companies that manages federal loans but also issues its own private loans.

      As far as the question about credit cards…I would want to pay those off first. Like you point out, they have the highest interest rate so they should be priority. Plus, they are just dangerous compared to something like student loans which is a lower risk and has safety nets should you ever run into issues.

      Hope that helps and good luck!

  • Y Cardoso

    Thanks for this, it was very helpful! I just want to make sure I am on the right track. I have private student loans and I have one of them for about $1700 at a 10.25% interest rate. However, I have another at $6000 with a 13% interest rate. I have about $2000 to put down towards the loans and at first, I thought I should pay off my smaller loan. But according to your article, I should apply it to the $6000 one because of it’s interest rate and just make sure my loan provider applies it to this exact loan account, correct? What if the $6000 is on an interest only repayment plan right now and the other loan is not? Does this matter?

    Thanks again for your help!

    • Thomas Bright

      Yes, if it’s on an interest only repayment plan, then they likely won’t allow you to pay extra on the principal. In that case, you either need to come off the plan or put your extra toward the $1700 loan. I would call the servicer and ask for clarification. Even if you pay toward the $1700 loan, you will pay it off entirely. At that point, you would likely need to come off the interest-only plan anyways.

      Hope that helps!

  • Thoughts on this mess? This is my wife’s student loans.

    A $9,744.75 6.800% min = $68.90
    B $613.49 3.400% min = $3.10
    C $10,466.87 6.800% min = $74.01
    D $2,996.33 3.400% min = $15.13
    E $6,974.75 6.800% min = $49.32
    F $3,394.90 4.500% min = $36.57

    Minimum Monthly = $247.03

    I only have $100 extra dollars to throw at this per month right now and don’t know where to put it. I know you said at the highest Amount with the highest interest but I’m tempted to throw the extra $100/mo at Loan B first to reduce the number of loans then keep it on Loan C going forward.

    • Thomas Bright

      Hey Rick,
      Sounds like a plan to me. The method I wrote about is simply the most efficient. If getting rid of Loan B will give you some peace of mind and help you keep a “psychological edge” over the debts, then by all means do it!

      Good luck,

  • I get an annual bonus every year that I anticipate will cover 12 months of payments, but only under the Extended Graduated repayment plan. This is because although I have high income I have virtually zero income available for student loans due to other personal debt. Because I can only afford the Extended Graduated repayment plan, I can’t take advantage of the Public Service Loan Forgiveness program that I otherwise would qualify for. And because of my high income the Income Based programs wouldn’t apply either. So my question is as follows: If I make 12 months of payments in one lump sum will I not have a student loan bill for 12 months or will my servicer just apply the lump sum payment to the principal and accrued interest thereby presumably causing my monthly payments to shrink a little but still leaving me with a monthly responsibility for which I have almost no way of paying? My service is Great Lakes.

    • Thomas Bright

      Rob, the best answer to your question will come from Great Lakes directly. I scanned their site for a quick answer but couldn’t find it. I will say this, though. Back when I had loan with Great Lakes, I paid ahead very aggressively. I remember that once I paid a large amount, my due date was pushed back significantly. So, when my balance was very small (almost completely gone), my “next payment due” was not until 2019! That suggests that they do allow you to push back your due date, which sounds like what you are hoping for. there are certainly cases where this is much more favorable than just having a lower monthly payment. Just remember, things might have changed since my situation, AND the rules might be different given your graduates repayment plan. i wish I could give you a firm answer, but your best bet is to call customer service.

      Good luck!

  • Leonard Latouche

    Hello Thomas,

    I have $60K in debt and $25K of those are private from undergrad.. I have a business degree and I’m trying to find a job that at least does $40K/year.. I would like to pay the loans off fully or at least bring them down significantly in the next 4 years.. any suggestions?


    • Thomas Bright

      Hi Leonard,

      My best suggestion is, as the article suggests, to pay down the highest interest rate loans first. These will probably be your private loans. My suggestion is to focus on those, and even consider a special repayment plan for the federal loans. See if you qualify for IBR or even something like graduated repayment. This way, you can minimize interest while also keeping reasonable monthly payments. Good luck!

  • Anonymous

    How do i pay off a student loan that is in collections?

    • Thomas Bright

      You need to verify whether the loans are with internal collections (still operated by the lender) or third-party collections, meaning your debts have likely been sold to the third-party by the original lender. Then, you can take it up with the collector directly. Explain your situation fully and be sure that you do not over-promise how much you can pay. When you reach an agreement, be sure to document the arrangement in writing and keep this as your record.

      Good luck!

  • I borrowed 150,000 for undergrad and grad. I graduated in 2011 but the loans have already grown to 200,000! I calculated that the interest is 6.8 is growing at more than 10k per year, but I only make 40K per year! After taxes I have 30K, and then life expenses I have about 7k left at end of year to pay back loans. So every year, my loans get bigger and bigger because I cant pay interest, AND I AM LIVING DIRT POOR! I read about IBR and got on it, but does that mean at end of 25 years my loan will be 500k and I will owe tax on forgiveness? What should I do?

    • Thomas Bright

      Brad, that’s tough. Try to hang in there. Hopefully your income will increase and the payments will become easier. Other possibilities might include that you work in a nonprofit sector so you can qualify for PSLF. If all else fails, you are at least on the IBR and will have the remaining balance forgiven. While that will be taxable, the laws may change between now and then AND the tax probably won’t be as much as you fear.

      Best of luck, hang in there!

  • Hello Thomas,

    I have about $60k in student loans which are divided into about 18 different loans (with the same provider). My minumum payment is around $750 and I have been paying $1000. I am set up for the 10 year plan and I plan on paying them off in 6.6 years. These loans started in 2006 and go through 2013. I know that you have said to pay the highest interest loans off first but here is what I have been doing. I have been paying the oldest ones off first which have a slighly lower interest in which I am down to about 14. It actually feels like I am getting somewhere. Do creditors see this progress or is this still a bad way to pay them off since the interest is a little lower?

    Thank you,

    • Thomas Bright

      Hey Katy,
      Thanks for commenting. That is a lot of loans! Your total balance isn’t uncommon but having it broken down into 18 is a lot to manage! Wow! To answer your question, please don’t feel like you have to change anything. The method I am advocating for here is simply the most efficient. It WILL save you the most money in the long-term. But, if you feel really good about closing those old accounts, and that is helping you stay motivated, we do not want to jeopardize that. It’s up to you, but keeping a good attitude during repayment is important and it sounds like your method allows you to do just that.

      Keep up the great work,

  • Thomas, very informative article. I have 47000 in student loan debt. My employer has agreed to pay 1000 dollars a month toward my loans (I feel like I won the lottery)! As I set this up, would it be better to plan low monthly payments ( Ithink 350 is the lowest) and put the rest toward principle, or make my monthly payment as close to 1000 as possible?

    • Thomas Bright

      Hi Ian,
      That’s a great deal that your employer is offering. If I understand your question correctly, then I really don’t think either way will make much of a difference. I’m not sure your lender will allow you to ask for super low monthly payments and then simultaneously allow you to pay aggressively to another principal. I could be wrong, but I think the monthly payments will be set based on the original loan amount and interest rate, and I doubt you can negotiate that much without showing a hardship. That said, once you know your monthly payments, be sure to apply the extra to the account with the highest interest rate, as this article explains and you will be set!


  • Would going bankrupt with the student loans be smart? After bankruptcy isnt it like starting over with a clean slate?????

    • Thomas Bright

      Unfortunately, it’s extremely difficult to put student loans through bankruptcy. You have to have significant, extenuating circumstances leading to your inability to pay. It’s very rare. Some consumers have tried to be “savvy” by putting student loans on credit cards and then trying to discharge that debt. That process is also a bad idea and can land you in jail. Long story short, bankruptcy isn’t an option for these loans.

  • Christina

    Hi Thomas,

    I am wondering if you could help me with something. I have a number of federal loans that are now being serviced by Sallie Mae. I was not making payments on my loans last year so there is a lot of accrued interest. The loans are all currently in deferment but I want to make payments to catch up and pay off as much as possible. The total of the loans is about 50k with a mix of subsidized and unsubsidized loans. I am currently focusing my efforts on the unsub loans. They are all the same rate so I have been picking individual loans off of the summary and paying it off. The plan is to do that and then keep moving up the list until I can make payments that are evenly distributed across the loans. The total accrued interest right now is about $2000 which is the next payment I want to make. Should I pay the $2000 in accrued interest or should I direct the funds to pay off one of the $2000 unsub loans?

    I really appreciate any advice you could give me.


    • Thomas Bright

      Well if they are all the same interest rate, we recommend (along with the CFPB) paying off the one with the lowest combined total of principal + interest. This will allow you to close that account, and can have a boost for your credit while providing stability.

  • Hi, Thomas. This is great information. Thank you for sharing. Now, I have student loan money that I have not spent that totals about $6000. I’d like to apply this back to my loans. Now, I have two loans at the highest interest rate of 6.8%. One loan is a approximately $5000 and has accrued about $100 of interest. The other loan is approximately $6800 and has accrued about $800 of interest. To show this better:

    Loan A: $5000 with $100 interest at 6.8%
    Loan B: $6800 with $800 interest at 6.8%

    I want to apply the full $6000 for payment. I can pay off the $5000 loan and apply the rest to the other loan, and that makes one less loan to pay. But on the other hand, interest paid on loans can also be claimed on taxes. So, my questions are:

    In this case would it be wiser to pay off the $5000 loan and have one less loan or should I pay on the larger loan (for tax reasons) and still have two loans to pay?

    • Thomas Bright

      Hi Marisa,
      I would suggest paying off the $5,000 loan so you can close an account, which can boost your credit and provide stability. As for student loans and taxes, here is a post on why you shouldn’t alter your repayment strategy for tax deductions.

  • Hello Thomas,
    I have 2 stafford loans from great lakes w/ a standard 10 year plan. The amount are:
    $134,000 and $39,000. Right now I pay the minimum required each month. I can make extra payments each month but not sure which loan I should make the extra payment to? I also heard people saying that making extra payments won’t help since the loans are simple interest and all the interest are already calculated out for the entire time frame or that the interest is tax deductible? Please help.


    • Thomas Bright

      Hi Lena,

      Thanks for your question. Let’s clarify one thing right off the bat–paying extra WILL make a difference, absolutely. The interest on Stafford loans accrues every day and then compounds on a monthly basis. By paying more toward the loans, you absolutely limit interest growth and thus the total amount you will have to pay. And yes, the interest you pay is tax deductible, but that’s not a good enough reason to accrue more interest. Like the article says, you will want your extra payments applied toward the loan with the highest interest rate. You might consider filling out the letter from the CFPB and sending that in to your lender too, just to be sure.

      Hope that clarifies things. Best of luck!

  • Hi Thomas,

    Thanks for your prompt response. Please permit me a follow up question.

    How do you define “efficiency” as you have used it in regards to servicing debt? When you say “the most efficient way to service debt”, does that mean (1) the fastest way timewise to pay it all off or (2) the way to pay it off that minimizes the nominal amount paid in interest over the life of the loan portfolio?

    I agree with what you are saying if efficiency means payoff speed (1), but I am struggling to conceptualize how paying off loans based on interest rate alone minimizes the dollar amount paid out in interest.

    I’m asking for the clarification because when I look at a breakdown of principal vs interest paid by loan for one of my monthly payments, the higher principal/lower interest rate loan displays a larger dollar amount paid in interest. If I am interested in minimizing overall cost out of pocket and not necessarily getting rid of the loans as soon as possible, shouldn’t I put all excess funds (those in excess of the minimum payment) towards the loan that generates the highest dollar amount in interest? That way, the principal amount against which the interest rate is applied reduced most rapidly?

    My apologies if I am beating a dead horse… I am just trying to be as proactive as possible and wrap my head around all the concepts.

    Thanks again,

    • Thomas Bright

      Hey Matt,
      I have been meaning to put together a graphic of some sort that explains this in more detail. Since reading your posts, I am definitely going to get it created in the next week or two for you and others to see, because I know this is confusing.

      Here’s what I will say in the meantime, although I know it’s still going to sound abstract. By efficiency I mean both the quickest payoff time and the least amount paid. In this case, the same strategy achieves both results. Again, I need to show an example, but here’s one thing to keep in mind that might help you get your head around it. Trust me, I’ve struggled with this too.

      Remember this: When you put your extra funds toward one of your student loans, you have to consider the consequences to your OTHER loans. For instance, in your original example, if you pay extra toward Loan A, what will happen to Loan B? Think about those consequences. Loan B will continue to grow at a higher rate than Loan A. Even though Loan A is acquiring more interest early on, as you pay it down Loan B will be churning away like a furious, interest-accruing machine. The end result will be greater cost to you.

      Long story short is this: Every student loan you have accrues interest every SINGLE day. The highest interest account will always lengthen your repayment AND increase your total paid if it is allowed to grow.

      I don’t know if I have clarified anything at all, but that example is coming–I promise!

  • Steve K

    My question is this, I have a HS senior who will be going to a state school in the fall as of right now I have about 1.5 years worth of tuition saved. Is it better to still take the unsub Stafford loan out not knowing what will happen in years 3 and 4 or pay for the 1st year and possibly 2nd of college debt free? It is my goal to save enough for two years before he starts and then try to save for the last two years before he becomes a junior and senior. However Im not sure if that will work out the way I have planned.

    Thank you

    • Thomas Bright

      Hi Steve,
      That’s a great question, but a tricky one. Here’s what I know: The new interest rates for Stafford loans will be announced on June 1, so you can make your decision then. It’s also commonly assumed that these interest rates are only going up from here. Because of this, it might be smart to take out the loans this year and maybe next year and keep saving for years 3 and 4. Because if you pay now and don’t have the money later, then the loans in years 3 and 4 might come at higher interest costs. At the same time, by taking out unsubsidized loans now, they will accrue interest until they are paid, which could be four years of interest growth by the time he is done. So like I said, it’s a little tricky because there is not only math involved but also a lot of unpredictable variables.

      What I do know is that if you already have 1.5 years of tuition saved, then you are doing better than most. I hope your son appreciates that! Good luck with your decision–I think you should be in pretty good shape either way you do it.

  • Hi Thomas,

    Is there any possible scenario in which it is more efficient to not pay off the loan with the highest interest rate first?

    I have two loans: The first (loan A) is at 27,000 with a 4.99% interest rate. The second (loan B) is at 14,500 at 6.49% interest.

    Please correct me if I am wrong. If I were to make no payments over the next year (rest assured, I have no intention of doing this), loan A would accumulate 1,347.30 (27,000*4.99%) in interest over the next 12 months. Meanwhile, loan B would accumulate 941.05 (14,500*6.49%) over the same period.

    Because the principal amount on loan A is so much higher, it appears it is accumulating nominal interest more rapidly than loan B.

    Therefore, would it make more sense (at least at this stage) to apply extra funds to loan A?

    I really appreciate any guidance you can provide.


    • Thomas Bright

      Hey Matt,
      This question can keep you up at night, trust me. But the answer is no. It’s hard to wrap our heads around. But believe it or not, it’s still more efficient to pay the higher interest account. When we are thinking about efficiency, we don’t care about the “amount” of interest that grows. Instead, we care about the percentage. The account with the higher interest rate (by definition) is going to increase by a greater rate or percentage and, again, that’s what matters. Even though Loan A has added more interest in your example, it’s actually not growing faster.

  • Hi Thomas,

    I consider myself reasonably well educated on the topic but your insights and suggestions have shown me new ways to save and pay down my debt faster. Even better, your thoughtful responses to the commenters answered questions I didn’t even realize I had. I just wish this article (and the comments) had been required reading when I was in school.



    • Thomas Bright

      Matt, I really appreciate the kind words! Helping you pay off your debt faster is definitely the goal, so it’s great to hear that we have been able to help.

      Thanks for reading and commenting, and best of luck as you continue to knock out the loans!

  • Hi, Thomas,

    I’m wondering how my payments are applied to the different loans that I have serviced (through Great Lakes) if I’m currently only making the minimum payment. I plan to increase my payments as soon as I can by eventually using money that is currently going towards paying off some toxic debt once those debts are paid and that extra cash is freed up.

    For about the next 8 months, I can only afford the minimum payment. There is a lot of information on the internet about how EXTRA payment above the minimum is applied, but I’m curious how my minimum payments are being applied. The loans I have are as follows:

    $32,075 at 6.8%
    $5,550 at 4.5%
    $3,847 at 3.4%

    These loans are all grouped into one account. I’m hoping they will apply 100% of my payment toward the 6.8% loan first but I’m guessing it’s probably spread out across all three in some sort of weighted arrangement. Do you know how this might work?

    I have a similar Excel spreadsheet as the one mentioned above by someone and I’d like to get an idea of what kind of numbers I can plug in to my spreadsheet.

    Thank you!

    • Thomas Bright

      Hi Molly,
      That’s a good question but hard for me to answer. while you are paying one monthly payment, that is being distributed across those three loans based on their original principal and interest rates. You should be able to access this information from your user account or by calling into customer service. Only when you start applying extra payments can you give them instruction on how it should be applied. Sorry I’m not more help!


  • Hi Thomas,

    I have a question regarding the private loan from Sallie Mae: my boyfriend is going into graduate school and he requests $42000 for the first year of school. With the fixed rate of 8.65% and 10 years of repayment they calculated the total interest would be $38800 (isn’t it an insane amount in interest?)making a total $80000 in 10 years for 1 year at school (he has 3 years total). He also chose the option of paying $25.00 each month while in school (the other option is to pay $300 while at school).
    What are you thoughts on that? Should we still go with this plan or should we look somewhere else? Would you recommend paying off while at school or should he wait until he graduates and starts making money?

    Thank you

    Bets regards, Helen

    • Thomas Bright

      Hi Helen,
      Those loans are expensive, but the interest rates aren’t unusual for private loans. The best bet would be to find cheaper tuition by utilizing scholarships or choosing a different school. I understand that isn’t realistic for everyone. As for paying in school, that’s always a good idea if it can limit interest growth. It’s just about determining how feasible it will really be while also keeping up with classes.

      Thank you and good luck,

  • Hi Thomas,

    I’m faced with a situation where I have the excess cash to payoff a family member in-full who I owe $4,000 for a student loan which they paid off for me to avoid further interest OR continue to accumulate that cash to payoff a federal loan with $7,000 remaining at 6.55%. Despite the best strategy of paying off the higher interest loan first, my thinking is that I payoff the $4K now and use that future cashflow to increase my monthly payment on the $7K loan to accelerate the repayment period and in-turn maintain the tax benefit of writing off the annual interest.

    A third option would be to put $4K toward the $7k loan but if I can’t pay it off in-full, I do not see the benefit of still making payments on both.

    What do you think? I appreciate your opinion.

    Thank you

    • Thomas Bright

      Steve, apologies for the late reply. It’s absolutely in your best mathematical interest to pay toward the $7,000 loan. But your friend might be ready for their money and paying them would be a nice gesture. You do get a tax deduction from the interest, but you should not let that affect your strategy. By paying off the high interest account (or even lowering it) you will save the most money over time.

      Here’s a post on the tax deduction and why you shouldn’t chase it.

  • Man, sorry. I just woke up. Didn’t realize how bad that second paragraph was. Lets try again

    If I’m looking at about 50k of debt, split down the middle between plus loans at 7.9% and then a mix of stafford loans (subsidized and Perkins at 4.5% and 5% respectively, and unsubsidized at 6.8%), once I pay down the plus loan to roughly 10,000, (outstanding interest paid) by putting extra funds towards it, (while making the minimum payment of about $280 on the stafford account) is there a point where I can begin to focus more on the higher principal loans with a 6.8% interest rate? Or should I take the plus loan the way down? Thanks a million!

  • Thomas,

    Thanks so much for writing such an informative and helpful article, and taking the time to answer your readers’ comments and questions.

    I have a question: if I’m looking at about 50k of debt, split down the middle between plus loans at 7.9% and then a mix of stafford loans (subsidized and Perkins at 4.5% and 5% respectively and unsubsidized at 6.8%, once I pay down the plus loan to roughly 10,000 (outstanding interest paid of course) by putting all available funds towards it )while making minimum payment of about $280 on the stafford account), should I then begin to focus more on the approx unsubsized loans at 6.8% once I cross a certain threshold? Or should I take the plus loan the way down

    In other words, at what point should I stop focusing exclusively on paying down the plus loan, and start paying more towards larger principal loans accruing at a 6.8% or even 5% interest rate? I understand that on a percentage basis the 7.9 percent loan grows faster, but is there a point where the principal on the plus loan becomes low enough so that the interest accruing is negligible compared to a higher principal loan with only a slightly lower interest rate?


    • Thomas Bright

      Hi Chris! Forgive my late reply–it’s been busy around here.
      This is the type of question that can keep you up at night, because the numbers are hard to grasp. Trust me, I’ve been there! But, believe it or not, it’s better to take the highest interest account all the way down and pay it off entirely. What you have to understand is that even though the interest it accrues at this point is negligible, it’s still the largest percentage of growth and if you put your money elsewhere the result is inefficieny. It’s also helpful to keep in mind that once the high interest account is paid off, you will have even MORE money to put to the next account–so there is still this sort of snowball effect.

      Best of luck!

  • Hi Thomas,

    Great tips and thanks for all the feedback that you share. I want to put your tips into action and hopefully save some money in the end. Below is the current snapshot of my situation (monthly payment due $216). I pay $500 every month.
    A: $2500 @ 6%
    B: $1000 @ 5.6%
    C: $10500 @ 6.8%
    – If I am understanding correctly, based off your advice, you recommend me only pay off ‘C’ and do bi-weekly payments ($250 & $250 each month). Therefore I never touch ‘A’ & ‘B’ until ‘C’ is paid off?

    Looking forward to response!


    • Thomas Bright

      Hey Rob–sorry for the delay!

      You have it figured out–with one catch. You still MUST pay the minimum monthly payment toward A and B. Other than that, you are good to go.

      Thanks for the question!

  • Michelle

    P.S. Thomas, I am paying $500 bi-weekly now.

  • Michelle

    Hi Thomas,

    Thanks for this article. I have a loan with Great Lakes and at first I was making the minimum payment on the Extended Graduate level plan until I recently got a promotion. My payments were initially around $145-50 per month and I was only covering interest. I switched to the Level plan and my payments are now $355 only I made a $500 payment which meant I paid ahead. Apparently, only $4 was applied to the principal balance because between June and Nov (my first payment due) I was accruing interest. Now, I just switched back to the Extended Graduate plan because I figured it would be better to have lower minimum payments and the excess would go to the principal. I tried to tell the Senior Loan Payment Specialist that I want the excess of the payment to be put toward the loan with the highest interest rate. He was telling me that they automatically put it to the principal balance but to the loan with the highest amount. The example was: A loan for $10,000 with 2.5% interest rate would be paid with the excess before a loan for $1500 with 5.8% interest rate because the former would accrue more than the latter. Below are my loans. Any advice is greatly appreciated.

    Subsidized $11,092.74 3.4%
    Subsidized $2,400.00 4.5%
    Subsidized $3,000.00 5.6%
    Unsubsidized $15,019.67 6.8%

    • Thomas Bright

      Michelle, I’m sorry for the late reply. What your lender told you is flat out not right. Well…let me clarify. Yes, the loan with the bigger amount will accrue “more” in terms of dollar amount, but that’s not what we’re interested in. The account with the higher interest rate will accrue “more” in terms of percentage, and that’s what really matters. Now, it may be the policy to apply payments in this way on that specific plan. If that’s the case, they may ask you to come off the graduated plan before they will apply them properly. That decision is up to you. But, with your promotion, if you really feel like you are in a position to get ahead, you’ll want to be paying the highest interest accounts first. Try talking this through with them again, and consider using that CFPB letter.


  • Hi Thomas,

    This is a great post, thanks for sharing. I have a total of 11 loans ranging from 3.75-13.00%. Here are my 4 highest interest loans:

    $13,414 13.00%
    $6,949 13.00%
    $7,560 11.50%
    $25,630 9.25%

    I have been paying the minimum for 3 years but have saved $14,000 that I would like to use to pay off the $13k loan. I saw your back and forth with Logan, but wanted to see if I should be putting my monthly payment from my $13k loan ($184/mnth) towards the $6k (13%) or the higher balance $25k (9.25%). Because the interest rates both really suck.

    Love to hear your thoughts!


    • Thomas Bright

      Hi Ciara,

      Since two of your loans have a 13% interest rate, you will want to take care of those first. If you have $14,000 to put toward them, it actually does not matter which one you pay off in full. No matter which way you do it, you will have one loan of $6363 remaining at 13% interest. This will continue to be your priority and where you will want to put your extra payments.

      Good luck!

  • Thomas,

    I read the comment above where someone stated if you use the IBR plan the forgiven amount after 25 years is taxable income and you have to pay taxes on that to the IRS. Is this the same if you do the public service forgiveness plan?

    I currently have a principle balance of $44K in student loan debt. All of it except $2750 is unsubsidized. The loans are all Federal loans that are managed by Sallie Mae at an interest of 6.8% interest. I just started a forbearance period on all these loans. There are a total of 9 loans including the subsidized one. I am just getting ready to start a full time job, but of course it is low paying and I have other responsibilities too. My job is in a non-profit hospital which qualifies me for the public service forgiveness…but I was unaware of the tax penalities of these programs if your loans are forgiven. I am thinking the best option would be to pay my loan off with large payments over a shorter period of time. I just spoke to Sallie Mae today and was told if I can find a way to pay $1000 a month I should have them paid off within 4 to 4.5 years.

    So, what are the tax penalties I will see if I choose the public service forgiveness and have the forgive my loan after 5 years Vs. working my butt off and having no life to try to pay $1000 a month to get them paid off in 4-5 years?

    • Thomas Bright

      Hi Karisa,
      Great questions. Luckily, forgiven debt in the PSLF program is NOT treated as taxable income. You can read this fact sheet for more information:

      So it’s sounds like you are in luck and will be in good shape to continue making the payments to the best of your ability and then have the rest forgiven. Just keep in mind that you likely won’t want to change jobs, unless of course you head to another employer that qualifies for the PSLF. Best of luck.

  • Thanks for the helpful advice-I am hoping you can help me figure this out:

    I can’t find my Great Lakes interest rates on their website. I am waiting for them to return my call, but in the meantime, maybe you can help.

    Loan #1: $10k-monthly payment of $132, going to $74 principle and $58 interest.
    Loan #2: $21k-monthly payment of $235, going to $135 toward principle and $100 interest.

    Does this mean I’m paying appx 40% in interest? That can’t be right, but I can’t seem to understand how it works! My plan is to make extra payments toward loan #2 and using your template letter to make sure they apply it correctly.


    • Thomas Bright

      Hi Wendy. You definitely aren’t paying a 40% interest rate. But yes, it does look like approximately 40% of each payment is going toward interest. Perhaps you already have some interest that has accrued and you are still paying it down? As long as your principal payments are higher than your interest payments you should be making progress. Just remember, you want to pay extra toward the account with the highest interest rate. Even though #2 is wayyyy bigger, if the interest rate is lower than number, then you will make #1 your priority (if you want to follow our method). And yeah, I can relate to not being able to find the interest rate online. They do tend to bury that information sometimes. Good luck!

  • I just want to say THANK YOU. I had been making extra payments for the last two years, but my lender (Great lakes) had not been disbursing the funds properly. You saved me thousands in interest today. YESSSSSSSSSS.


    • Thomas Bright

      Laura, that made my day! I’m glad we were able to help. Great job with your repayment so far and keep up the great work!

  • Hi Thomas,

    Great article. I have a question about how my student loan payments are being applied. My provider has the same policy as Great Lakes where after any outstanding interest is paid, any additional money is paid towards the principal with the highest interest rate. However, when checking my statements, I am noticing this is not the case and part of my money is being applied to the principal with the lower rate. Do you know what I can do in this situation and if I have any rights to a refund?



    • Thomas Bright

      I would think so. I mean, if they are explicitly doing something different than what their policy states then you might have a case. I would also go back and check any paperwork and terms and conditions from when you initially opened the loan. Maybe they have changed their policy since then. Either way, it’s definitely worth a phone call to sort it out, and they may be able to apply the payments as you wish if you communicate that to them. Good luck!

  • Hey Thomas,

    I have several student loans with Great Lakes and have had auto pay set up for over the last year to take advantage of the interest rate incentive (though it’s only .25%, at least it’s something). I was wondering if it would be more beneficial to make bi-weekly payments as mentioned in your article or if I should just stick with auto pay?


    • Thomas Bright

      Good question Tyler. That might be a little math-heavy to figure out 🙂 So as an example, if auto-pay requires $500 per month and that’s the most you can pay (ie you aren’t making “extra payments”) then you might be better off with auto-pay. The .25% interest savings might be more than what you will save by cutting out two weeks of interest growth on a payment of $250. Make sense? That’s my gut feeling but you may want to do the math and double check. Now, If you can pay $500 on auto pay AND have more money to contribute…then yes put your extra payments toward the loan on a biweekly basis or as soon as they are available. Good luck!

  • Hi Thomas

    I’m still in school and I am already looking into the future when I have to pay off my loans. I will be entering the Air Force Reserves as a Chaplain Candidate until I graduate from grad school next year and go active duty.

    I have the following loans:
    Principal Balance Interest 10 Days Interest Outstanding Fees Total
    $5,500.00 3.4% $0.00 $0.00 $0.00 $5,500.00*
    $5,500.00 3.4% $0.00 $0.00 $0.00 $5,500.00*
    $7,000.00 6.8% $1,006.73 $13.03 $0.00 $8,019.75*
    $7,000.00 6.8% $570.81 $13.03 $0.00 $7,583.83*
    $10,250.00 6.8% $277.83 $15.18 $0.00 $10,543.01*
    $7,526.00 6.41% $241.70 $13.21 $0.00 $7,780.91*
    $3,194.00 6.41% $27.47 $5.61 $0.00 $3,227.07*
    $10,250.00 5.41% $74.39 $15.18 $0.00 $10,339.57*

    Now how can I utilize the the Public Service Loan Forgiveness Program when I go active duty? As an O1-E would I even qualify for any type of loan payment plan that would lower my payments and make this PSLFP worth doing? I would assume I would be done paying off a standard payment plan before even benefiting from this program.

    I am also eligible for a $25,000 2.99% private loan from USAA. Should I use that to pay off any higher student loans?


    • Thomas Bright


      It looks like you are organized. Good job as that it the most important step. And yeah, if you think you will be fine to make the standard repayment, given your income, then the public service forgiveness may not be of much use to you. Even another program, such as income-based, might just slow down your repayment. Long story short–if you’re comfortable with the payments as is, keep making them! Honestly, I don’t know much about USAA loans. That interest rate would definitely be better than some of your others, but you need to do research about any benefits and safety nets that USAA offers. I’m guessing there are some–more so than with other private lenders at least.

      Good luck!

  • Hello,
    I have $138,000 in both unsubsidized and subsidized student loan debt. I am currently have an in school deferment after being robbed of my grace period (6 months) because my university was not offering the classes I needed for the period. Beware all because I have learned that there is absolutely NO EXCUSE whatsoever for not being in school and to preserve the 6 month grace period, including extreme illness, etc. That being said, I have a question – I am going to go the extended 25 year repayment plan to keep payments reasonable however ultimately my goal is to pay my loans in lump sums – 10 and 20K at a time over a period of a couple years. Will I have to pay any more interest because of setting up “extended” repayment terms than the actual amount of these loans ($138,000) to pay them off in say – 3 years?


    • Thomas Bright

      Hey Sherry,

      Thanks for sharing your experience with the grace period and in-school deferment. As for your question–I’m not sure I fully understand but I’ll do my best to answer it. It sounds like you are going to pay your loans off quickly (in just a few years with large lump sums), but you are setting up the extended repayment plan just so you don’t have to pay as much each month. Not a bad plan–and I can see where that might feel more efficient. In reality, though, you are better off to pay as much as you can each month. In other words $500 extra each month would be better than paying $6000 (500 x 12) in a lump sum at the end of the year. Interest grows daily on student loans, so the sooner the better. Good luck!

  • Yup, better than nothing. I just saw on my Great Lakes account that the 1098-E is available now. Also, I read some other information from Great Lakes (posted below) that makes it look like they default into paying down what is most beneficial. Maybe they changed it from when you originally posted? Good to know. And kind of surprising that they aren’t trying to take advantage of you!

    How Payments are Applied
    Since interest is the cost you pay to borrow funds, our goal is to apply payments in a way that minimizes your interest expense.
    Keep in mind that:
    Interest accrues daily on the principal balance of your student loans.
    Generally, student loan terms require that payments are applied first to any late fees, next to accrued interest and then to the principal balance.
    There’s no penalty for making payments before you’re required.
    If you pay more than your scheduled monthly payment amount, the additional amount will be applied to the principal balance of the loan(s) with the highest interest rate. This is beneficial to you by minimizing the final cost of your debt.
    Depending on your account status and the type of repayment plan you’ve requested, the application of your payments may vary. Find your situation below for more specific information.

    • Thomas Bright

      Awesome, good stuff Matt. I will try to update the post with some of this information in the near future. I had several loans with Great Lakes and always found them to be helpful and looking out for my best interest (pun intended). Thanks for reading!

  • Hey,

    Thanks for the post. I was searching just the other day to see if there is a way to have my extra payments go towards the unsubsidized vs. subsidized and it sounds like from what you’re saying I can do that. My unsubsidized rate is 6.55% and subsidized is 5.35% so I’ll be focusing on the unsubsidized, even though the principal is much higher. Something else I was wondering (and trying to research which is how I ended up here) is if there are any tax breaks or write offs for paying off student loans. It seems weird that there are a multitude of tax advantaged accounts for retirement or healthcare, but yet when your income is going directly toward student loans there is no way to avoid getting taxed on every dollar of it.

    • Thomas Bright

      Awesome–sounds like you are doing the right thing in prioritizing your loans. And, I completely agree with you about the tax policy. Since student loans are such a crisis, you would think you’d be able to write off every dollar you paid toward student loans. Unfortunately, the only tax break is the total interest you pay over the course of the year. Each student loan servicer will either mail you a 1098-E or have it available on their website. It’s better than nothing I guess.

  • Hi Thomas,

    First, thanks for posting all this helpful advice on your site. I have read through much of it. I am in a situation that I have not seen addressed on this website elsewhere:

    I am a dental student with just over 2 years of school remaining. I have a scholarship that pays for the entirety of my dental school education and a stipend that allows for barely enough to pay for my cost of living, just over a $1,000/month. This covers my rent and groceries, not more. This all is, obviously, a huge benefit. However, I have $65,000 in student loans accrued from my undergraduate education through Great Lakes. My in-school deferment period is nearly at an end and will be allowed a maximum of only 6 months in-school forbearance if I choose to use that option. I will be required to begin making payments of $650/mo while still in school, money I do not have currently. As part of my scholarship for dental school, I am ineligible to apply for any type of student loan.

    I would easily be able to make those payments upon graduating and working as a dentist, but that’s over 2 years in the future. Is there a way to consolidate my loans, or re-finance them through another source in order to gain additional deferment time and hold off on making payments until my graduation?

    I appreciate your time and thoughts on this,

    • Thomas Bright

      Hey Dane,
      I’m a bit surprised by this. Granted, I don’t know as much about this part of the student loan process, but my understanding is that in-school deferment should last for the entirety of your graduate school education. Have you already tried reaching out to Great Lakes to extend the deferment? I can see where interest would accrue on your loans while you are still in school, but to be expected to make full payments seems crazy! If they looked at your financial situation, they would know immediately that you could not pay–because you have no income. Definitely try reaching out to them again.
      If for some reason that doesn’t work, then yes it sounds like you would have no choice but to refinance with some sort of private loan that would offer you a grace period until you graduate. That just doesn’t make a lot of sense, though, and I’m hoping that you can reach an easier resolution!

  • Hello. Let’s say I have a Direct Stafford Unsubsidized loan for $7,500 with accrued interest of $1,000 at 6.8% AND also a Direct Stafford Subsidized Loan for $8,500 at 6.8%. The grace period ends in a couple of days. I have $5,000 that I intend to pay toward one of these. Should I pay toward the subsidized or the unsubsidized? Does the interest start accruing on the Subsidized loan on the day the grace period ends? Or will it on that day back up to the day I received the loan and calculate interest back to that date?

    • Thomas Bright

      Hi Connie,
      Part of the answer here depends on when you got this subsidized loan. If you received it between July 1, 2012 and July 1, 2014 then it will have been accruing interest throughout the grace period. If you had it sooner, then the interest has been covered by the government but will start on day 1 after the grace period. In this situation, since both your loans basically have the same total, it would be best to pay down the unsubsidized first. Why? Because this loan would still accrue interest in a period of deferment. So, since the subsidized loan had more protection (safety nets) you should save that for last. Good luck!

  • Hi Thomas,

    This site has definitely opened my eyes to more options to pay off my loans more effectively. Your advice seems spot on as well so thanks for that!

    I just graduated from grad school and have about 80k in federal stafford loans (of which 53k is unsubsidized and as of now 4k has accrued in interest). I am still in the grace period for the next 6 months or so but would like to start chipping away now. I was actively paying off the interest originally but fell behind the last year or so. I currently make around 50k/year at my job for your reference.

    Fortunately, I was just able to get help from my parents and with the money that I have saved myself, I have about 27k to start paying off the debt. I am just trying to determine the best way to pay this off in my situation. I like your idea of biweekly payments but would it make more sense to throw the entire 27k right at the unsubsidized loans right now and then start to chip away with biweekly payments after that? Hopefully by the end of the grace period when the subsidized loans start charging interest, I will have a better job and payments will be easier.

    Also, my loan service is FedLoans and they allow me to put money towards the principal directly without it going towards the interest first. I didn’t think this was possible but I asked them and they told me it was. Have you heard of this before and does it make more sense to pay down the principal first and leaving the accrued interest alone?

    Given my circumstances, what would be your advice on paying these loans off in the most effective way?

    Appreciate your time,

    • Thomas Bright

      Hi Mark, thanks for reaching out with your questions.
      If you have 27k that you absolutely know you want to put toward your loans AND you have some sort of emergency savings in place, then by all means you want to make that payment as soon as possible. Interest grows on student loans every day (in some cases not during the grace period), so the earlier you pay, the better. If a servicer lets you pay principal but not interest, that would be more efficient (although I am surprised that they give you that option). My recommendation is to take your 27k and do just as the article suggests–put it toward the loan with the highest interest rate. If it covers a loan in full, then apply the rest to the next highest interest rate and so on. After that, it sounds like you will have right around 30k left. With a salary of 50k and some smart money choices, you can be debt free within just a few years if you really put your mind to it.

      Best of luck Mark!

  • Michael

    Hi Thomas:

    I just started my loan repayment in December, and am paying significantly more than the minimum each month to try to “get ahead” (two federal loans; 6.55 % each; ~$55,000 debt; paying around $1,000 per month). A reader above (stephen) noted that his extra payments were being applied to future payments rather than to current principle and interest. I just noticed the same thing on my account (currently don’t have a payment due until April 2014). I downloaded the CFPB letter to send to my servicer (great lakes), but noticed that one instruction states “If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.” However, in a reply you gave to a reader you stated: “Lastly, if all your loans have the same interest rate, make your additional payments to the one with highest principal. That will be the most efficient and minimize interest growth.” So which one is correct? Apply additional payments to HIGHEST or LOWEST principal?? I want to make sure I know which one is best before I send off this letter. Thanks for your help.

    • Thomas Bright

      Michael, that’s a great point. I’m not entirely sure why the CFPB has a slightly different approach, but I’ll do some digging to find out. What I do know is that my method, presented here, is more efficient and it’s what I recommend for someone who is in a position to get ahead (as it sounds like you are). I think the CFPB is looking at it from the perspective of closing a loan, and they are assuming that if the balance is lower, people will want to close that out first. I guess we have a difference of opinion. Good luck!

  • Jennifer

    Hi Thomas,

    I am 30 years old, and I have am $106,000 in student loans debt. I have been really stressing out about it for the past year because reality hit after a new job and a pay cut. Although I am doing what I can to work an extra job on the side.

    $21,000 of my debt is Private Sallie Mae loan at 3.25%. $10,000 is a DL Consolidated Subsidized loan at 2.62%. And the rest of it (most of it) is a mix of Stafford – Department of Ed and Federal loans, subsidized and unsubsidized, with a range from 2.1% to 6.55%.

    So last summer, I called Sallie Mae and I asked them to apply my payments as interest only payments to the lower interest rate loans (2.62% and 3.25%) and apply more of my payment toward the 6.55% loans. Unfortunately I could only afford my minimum $860 a month and cannot make extra payments over that (which is why I asked to do interest only payments on the lower interest rate loans). Is this a good idea? Should I continue with this plan until the 6.55% loans are paid off?

    Also, in April, my loan payments will increase to $1343 per month because I was on the 2-year graduated repayment plan. I made some money-saving sacrifices, and I will be able to afford $1343 per month however barely any leftover. I may have to lower my payments to $1000 per month, how do you suggest I go about that?

    By the way, this is great. Thank you in advance!

    • Thomas Bright

      Hey Jennifer,
      Glad you thought this was helpful and thanks for commenting. From reading the specifics, I can say that one good thing going for you is the low interest rates with Sallie Mae. That will be a huge help to you moving forward, and you are right in trying to knock out the 6.55% account first. I guess your biggest challenge right now though is staying afloat when the monthly loan payments increase–and this is really the main drawback of the graduated plan. Luckily, you have been working other jobs, saving up extra money, etc. (all good ideas!). My only advice here is to remain in communication with both Sallie Mae and the federal loan servicers. I think you are probably “locked in” to the graduated plan, but they may give you some flexibility if you can show that the payments are eating up a large percentage of your income. Overall, you seem to be doing the right things. Just continue to focus on making the minimum each month and then saving money elsewhere. I know this isn’t the most exciting advice, but I can honestly say that you are in a tough position here. I can also say that it sounds like you are doing the right things, and for now you are probably better off just making sure that you make the minimum each month, rather than trying to put pressure on yourself to get ahead.

  • Maurice


    I’m glad I found this website, very relevant info. I have a question about IBR, I’m currently on IBR (loans are with Great Lakes). After my first 2 payments on IBR I realized they weren’t even covering the interest and the balances were increasing monthly, I have since increased my payments to cover the interest and a few dollars towards principal. What is the real benefit of IBR if your balances go up each month because the payments aren’t covering the interest? I’m almost at the point of having to re-certify for IBR, is there even a point to re-certify? Thanks

    • Thomas Bright

      Hi Maurice, that’s a good question. What we have to keep in mind here is that IBR is not for everyone and that it’s not always a long-term solution. Also, the government is supposed to handle the interest that accrues if your payment does not cover it. Do you have a point of contact you can ask these questions to? They may be better suited to answer your specific concerns. Most of the information about IBR that I have comes from this page:
      Good luck and let us know what you find out!

  • Our daughter currently has unsubsidized federal loans for grad school. We have been making the monthly interest payments as they have accrued to keep the loan principal from increasing. Is it better to have these payments apply to the accruing interest, or to the principal?

    • Thomas Bright

      Hi Rob,
      As a couple other people have mentioned, you usually cannot pay toward the principal on an individual loan unless you have first paid all of the accrued interest on that same loan. What you need to do, is separate out each loan according to principal and interest. Then, focus on paying toward the one with the highest interest RATE. Pay down all the accrued interest so that you can then pay toward the principal, even while the others continue to grow interest. That’s the most efficient way.
      Good luck!

  • Sonia Reyes

    Hi Thomas!

    So glad I found your article, the timing couldn’t be better!

    I am a total newbie, getting ready to make my very first student loan payment. I’ve determined that for now, I will be able to make additional payments of $50 each month. Not much, but its a start! After reading your article I did some research on my loan servicer’s website and found that they do offer an option to specify individual payment amounts for each loan, but no option to apply to principal only. In this case, would it be applicable to send the letter you reference in the article?

    Also a question about accrued interest … on the servicer’s website I see only reference to outstanding interest. Is this the same as accrued interest? I have 3 loans, only one unsubsidized, and I paid the interest on that while I was still enrolled in school to avoid capitalization: $2000-U (6.8%), $3500 (6%) and $5000 (5.6%). Last question, does the due date have significant bearing on interest? My current due date is the 3rd of the month. My apologies for the naive questions!

    • Thomas Bright

      Hey Sonia,
      Not naive at all! Thanks for stopping by and commenting. Federal loan servicers tend to be much easier to work with and tend to already manage payments in a way that is beneficial to you, but I think it’s still worth following up with them. You could try calling to get a clear understanding of how your extra payments are applied, and sending the letter could be a good idea, especially if it gives you peace of mind. It sounds like everything will work out just fine for you, though, given that they allow you to specify which individual loan your payment goes toward after interest. To your other questions–yes, outstanding interest and accrued interest mean the same thing. And as for the due date, that won’t really affect you at all. What you have to keep in mind is that interest on student loans accrues every single day. So between each payment, you will likely have 30 days of interest growth. The day of the month doesn’t matter at all. But this is a big part of why a bi-weekly payment strategy can save at least some money over time, because you can stop that interest half way into the 30 days. Hope that makes sense.
      Best of luck in your repayment!

  • Nicki Bee

    Hello Thomas!

    I graduated with about $31,000 in student loans back in April 2013. As of now I am around $28,800. I started paying my loans back in October and since I have a full time job, I am paying the most I can at this point, which is $550 a month. I believe the minimum it pay it says is about $350 so I am paying more which is good. My carrier is Great Lakes by the way. I enrolled in auto-pay on the 12th of every month which deducts .25% interest which makes my interest now 6.55%, still a lot 🙁

    I had read about paying twice a month or biweekly because it could save me money on interest? I am not sure how that works. Does that make sense to you or should I just keep on doing what I am doing. Thanks.

    • Thomas Bright

      Hey Nicki–great questions and it’s great to hear that you are getting ahead on your student loans!
      It sounds like you are on the right track, but let me just clarify the biweekly strategy once more. The idea here is to be able to pay the loans earlier in the month. So, you are paying $550 per month, but are you saving this over the course of the month and paying it in one lump sum? That’s not a bad plan, but you could potentially reduce interest even more if you cut that payment in half and paid it in two separate installments. So you might pay $275 early in the month and then the other $275 a few weeks later. This way, you have kept some extra interest from growing. It sounds like a strategy that could work for you, and keep up the great work. Best of luck!

  • Jessica


    I am currently with and am currently in the 120 day disbursement period where I am allowed to make my payment a “refund” vs. paying off my accrued interest. If I have already accrued interest in two of my loans, would you recommend paying off the accrued interest first or to make my payment a “refund”? Greatlakes suggests that the refunds subtracts money from the principal, making it essentially like I did not borrow the money in the first place.


    • Thomas Bright

      Hi Jessica,
      I had to do some research on this one, because I was not familiar with the refund option. After reading up, I definitely think this is the way to go. When you pay as a refund, all of that money will go toward your principal. Then, the interest will be recalculated according to the new principal, which means accrued interest will go down without you ever actually paying it. This is a “killing two birds with one stone” situation and something you should definitely take advantage of if possible. Great question!

      • I also had a similar question – I reached out to greatlakes and am awaiting their input. Im within 120 days and have the same option to pay as a refund; however, I can’t follow the math that comes with the interest payment vs refund option (the option to pay is greater than what my interest should be). I chose the refund option to pay down principal (as recommended by the site) but don’t understand how much interest I owe. hopefully greatlakes will respond because it is confusing.

        • Thomas Bright

          Hey Jack, good question. I’m not sure of an easy way to tell how much interest you will owe once you pay the refund payment and lower the principal. It absolutely will be cheaper in the long-term if you go that route, though. I realize that doesn’t answer your question exactly, but I definitely think you’re on the right track. It’s complicated to answer without knowing your interest rate, exact age of the loan, principal, and how much you are paying. But with those facts in hand, I bet Great Lakes will give you an exact number. Best of luck.

  • Hi Thomas,

    I love all your suggestions. However, I need clarification on one of your tips. You advised that, “The lender might put some of your money toward an account with a lower interest rate, when really it would be more efficient to put it all toward the highest interest account, ignoring any accrued interest. One good workaround (which I will add to this post later in the week) is to make your extra payments on the same say as your normal monthly payment. That way, there won’t be any accrued interest and all your extra funds will go to the right place. That’s a start while you wait to hear back from your written request.”

    Are you advising if my bill is100 dollars on the 15th of each month, If I choose to pay extra for that month, let’s say 200 dollars. You would advise me to pay it on the same day so that the extra money will be applied where?

    Thanks in advance.

    • Thomas Bright

      Hey there, thanks for pointing out a typo! Ha, I have changed it to say “day” instead of “say.” 🙂 To answer your question…it really depends on your individual situation (how much extra money you have and when you have it available). This might depend on when you get your paycheck, etc. Essentially what I’m saying is that you want to minimize interest growth overall. We can do this primarily in two ways: 1)Pay our extra toward the account with the highest interest rate and 2)Pay as early as possible. So here, I am recommending a combination. If your payment is due today, and you already have extra you plan on paying toward your loans–do it today. This will always be more efficient and will prevent at least some interest growth. And when you pay this extra, do it toward the account with the highest interest rate, even if that is a different account than the one that is due today. I know it can get confusing, so just try to remember point #1 and #2 and you can apply them to your given situation.

  • Marshall

    I am currently 28 months into a 10 year standard repayment for 55,000 in graduate school loans (all federal, all 6.55 %). My current monthly payment of 680 with a few extra payments has allowed me to get the total to 48500. I am considering refinancing to a 5.0 rate for 10 years, but having difficulty calculating the savings (or cost).

    The article on student loan refinancing was very helpful as well as this article, and illustrated the points I am trying to capitalize on, but I am having difficulty finding a program or calculator to actually see the benefit.

    Additionally I am considering starting to make a second bi-weekly payment to help with accrued interest, also I am unsure as to which loan to apply extra-payment to as they all have the same interest rate, but different principles.

    Any help or suggestions would be appreciated.

    • Thomas Bright

      Hey Marshall,
      I want to remind you of one important point…
      While it sounds like you are doing a great job with your loans and getting ahead when you can, don’t underestimate how unpredictable the future can be. At any moment, we can lose our jobs or suffer from another economic setback. The good news is that your federal loans have safety nets in place if something like this happens. If you refinance/consolidate into a private loan, that won’t be the case. As far as a loan calculator goes, I recommend this one: You can plug in the different amounts and terms to play with various scenarios. Lastly, if all your loans have the same interest rate, make your additional payments to the one with highest principal. That will be the most efficient and minimize interest growth.
      Best of luck!

  • Jacques Dalton

    I have been garnished over a year now and when I go to the site over different months I see No lower balance. What can I do to see the payments received?

    • Thomas Bright

      Hi Jacques,
      I’m not entirely sure. Is this being handled by a collections agency or some other third party? If so, look for their contact information, reach out to them, and explain your situation and that you are looking for some sort of payment confirmation. If this doesn’t describe your situation, I would suggest using this web resource:
      The Ombudsman Group is in place to help with situations just like this.

      Wishing you all the best!

  • Thomas,

    2014 is my year to refocus efforts around reducing this debt. I am repaying via AES, formerly Great Lakes and perhaps one or two others prior to that. For years, I have only been paying the interest. YIKES. My loan is roughly the same amount that it was initially. Anyway, I am paid on the 15th and the end of the month and I am scheduled for payments of 451.10 on the 15th automatically. Aside from making extra payments from bonuses, tax refunds, etc. what is your recommendation for how to make my regular payments to help reduce the interest accrual?

    Thank you.

    • Thomas Bright

      Hey Andrea,
      Congratulations on setting some great goals for 2014! I would suggest sending the letter from the CFPB to all your lenders, so that you can at least rest easy in knowing that payments are being applied properly. It’s good that you are in automatic payments, as that will bring the interest down as well in most cases. If you are doing these things, you are on the right track. I don’t really any other strategy for you to use other than just trying to find ways to devote more income to these payments. Just keep chopping away and you will start seeing some great results.
      Best of luck!

  • Tiffany

    I am exhausted from all the research I am doing to figure out how to repay my loans in the quickest, most efficient manner. I have four loans through one lender. Two are federal loans with 7.25% interest rates. They are grouped as you mentioned in the post. The current balances are $21,361 (original loan amount $14,861) with a accrued unpain interest of $63.41 (not sure what this is) and $14,564 (original loan amount $10,109) with an accrued unpaid interest of $43.23. In the same group as the two federal loans I also have an ELF loan with a current balance of $2,376 (original loan amount $2,158) and an accrued unpain interest of $13.83. In the other group I have a private signature select loan, 12.25% interest rate, with a current principal $3,321 (original loan amount $3,660), and an unpaid interest of $13.39. What is the best way to approach paying these things off as quickly and efficiently as possible? My balances have grown tremendously over the years and I’m looking to nip this in the butt now! I realize I have made poor choices as to paying them off in the past but I am looking to change that and get them taken care of and a thing of the past. I am looking forward to your advice and expertise.

    Thank you for such a helpful post and for actually responding to the comments and questions!

    • Thomas Bright

      Hi Tiffany,
      I really appreciate your compliments on this post, and I’m glad you are finding it helpful! Thanks for stopping by and commenting.
      I’m not sure why your current balances are so much higher than the original loan amount. My guess is that these capitalized as a result of a deferment period. Whatever the case, it’s great to hear that you are ready to start tackling these loans.
      Luckily, while you have multiple loans with different rates and accrued interest amounts, the answer is pretty simple. You want to start with the private signature selection loan at 12.25% interest. From here, continue paying each loan in the order of highest interest rate. (Of course you will need to at least make the minimum monthly payment for ALL accounts).
      All in all, that’s the key to being most efficient in your repayment. This isn’t always the way to go—like if you were struggling or experiencing a financial setback—so just be sure that you are aware of your financial situation at all times and don’t spread yourself too thin.
      Thanks again for reading and commenting!

  • Danielle

    Hi. I have loans through AES success and Great Lakes. Through Great Lakes, my payments go towards both interest and principal; however, through AES, I currently have $550.00 of unpaid interest and have been feeling like I am not getting anywhere with my payments even though I originally paid a lot more than my minimum balance – Everything is going towards interest and nothing towards the principal. I am wondering if it would be worth it to take a bite and pay the total of unpaid interest this month then make my regular payments monthly. Any advice on how to go about this would be helpful. Thanks in advance!

    • Thomas Bright

      Hi Danielle,
      The key to answering this question is that you need to know the capitalization policy for your lender along with the policy for applying payments. Capitalization basically occurs when accrued interest is then rolled into the loan total. So if a $1,000 loan with $500 in unpaid interest becomes a $1,500 loan through capitalization, it will then accrue more interest each month. We don’t want that! In general, based on my research, most federal loans only use capitalization at the end of a grace period or during deferment. So, this may not be affecting you. However, I have heard of some lenders capitalizing annually, so check your loan terms.
      If there is no capitalization, then accrued interest will not grow–only the principal will continue growing, and so this should be your focus. The issue is that some lenders might make you pay the accrued interest first. If I were you, I would call the lender directly, explain how you want payments to be applied, and dig deeper into their policy.

      Thanks for the great question!

  • Logan Tharp

    I agree for the most part with the points you make, but had an additional remark I wanted to get your feedback on. It may help others in the same boat as me with multiple lenders and loans. I graduated in December 2012 with a HUGE loan debt (~110K). I have been saving money where I can to help put as much toward loans as possible in these first couple years. I have put together this excel book, seperated into individual lender/loan sheets, that shows the loan pay-off schedule, as well as the effect of adding additional monthly payments. I have for the most part attacked the highest interest rate, but IMO there is a point of diminishing returns.

    For instance, I have been applying additional $1K/month payments to a 7.25% Citi loan that has a $142/month payment. At this point the remaining balance is right about $3K. If I make no more extra $1K payments (pay the min $142), it will pay off in November 2015 and for the period of Jan 2013-Nov 2015 I will have paid $224 in interest. If I continue paying the $1K it will pay off in 2.5 months and I will pay $35 in interest for the same period (for a savings of $189). On the other hand, if I apply that extra $1K to a bigger loan, even one at a lower interest rate (let’s say my 5.76% Wells Fargo loan with a current balance of $34,285 and a payment of $291/month) I will go from paying off the loan in July 2028 at a total interest bill of $17,325 to paying off in November 2026 at a total interest of $14,225 (for a savings of $3100). That same $3K over the next 3 months offers over a 16 times better return this way.

    I use my excel spreadsheet to calcuate what I call the P/I ratio. This is the the ratio of principal to interest applied to a loan out of a given payment. I also have columns for YTD and cumulative principal and interest to help track the effects of additional payments. The idea I use is to pay extra on a high interest rate loan until this ratio exceeds 3.0-3.5, then switch to another loan. It’s good to remember that once you are above that threshold it grows exponentially faster and you really aren’t paying much interest at that point in the life of the loan. So I guess my point after all that is that you should weigh the options and not always throw money at the highest interest rate, but instead take into account total loan balance as well.

    Your thoughts?

    • Thomas Bright

      Hey Logan,
      Thanks for your comment and for providing this idea to others! You have done your homework for sure, and it sounds like this strategy is working for you. I would make one point, though, and this can help explain why paying the highest interest rate would still be better.
      In your example, we are assuming that you have $1,000 extra dollars to put toward any loan on any month, right? So, you’ve been doing this to the Citi loan and, now that it’s smaller, it looks like applying it to the WF loan can help you get ahead. But what your example isn’t considering, as far as I can tell, is that once you pay off your Citi loan (after 2.5 months of paying 1K extra), you would then have 1k extra to put toward your WF loan. Your example isn’t considering this long-term effect. In other words, by paying Citi first, you are saving on interest and making interest and “growing debt” a smaller percentage of your overall repayment. And, when this is knocked out entirely, you can then put all of that extra toward the WF account.
      I hope that makes sense. If get some extra spare time, I will try to “crunch the numbers” and come back with a firmer example.
      Thanks for reading and sharing your insight!

  • Jennifer

    It is frustrating when I see advice encouraging people to enroll in income based repayment. In most cases (but not all), after 25-years, the forgiven debt is taxable income. With what a person will owe in taxes after 25-years of accured interest, they will be right back it the same boat! Only they will owe the money to the IRS v. student loan lenders.

    • Thomas Bright

      Hi Jennifer,

      Thanks for stopping by and commenting. I totally get where you are coming from, but I think you might be misinterpreting something very important. We aren’t recommending Income-based Repayment as a widespread solution. In fact, this post is designed to help people pay without any “government assistance” or program. But in reality, this just isn’t possible for most people. For those who do need the assistance of a repayment program, IBR is probably the best. And, also keep in mind that no one has to stay on it for 25 years. They could use the program for a few years to get back on their feet. Another issue here is that there really isn’t another solution. You certainly don’t want to suggest that people avoid their loan payments (damaging their credit), and discharging student loans in bankruptcy is both difficult and full of its own consequences.

      Thanks for reading!

  • Thanks Thomas your info helps me on what i might end up doing..i have just renewed my forbearance so i have until march 1st i will definitely do the income based repayment plan.. Could i make larger payments on the income based plan without penalty? and this will probably knock some time off as you say.. that sounds like best idea.

    But the chase loan was actually charged off and taken over by a collection agency..As you think, I have spoken with chase and only thing they will say is. i can either come up with a settlement with the collection agency and then said collection agency will go to chase and they will run credit and decide if they will give me 6 months to pay settlement. I don’t want to do that but these payments i am currently making are not reported to credit agencys.. so im actually dealing with a collection agency technically that is dealing with chase.I can try to call chase again and speak with them and see if there is anything they can do to possible take the loan back.

    Thank you again for the good words!

    • Thomas Bright

      Good deal Jay, glad we could help.

      You will want to pay that Chase account one way or another. Even if you pay it off through the collector, you can have its status updated to “charged off, paid” which will make the impact to your credit report far less severe. Settlement is also an option in this case, just keep in mind any extra fees along with the tax implications (anything over $600 will be taxable income).

      Glad to hear your forbearance is extended, and it sounds like you are headed in the right direction.

      Thanks again for reading and commenting!

  • Great article with good information. i have a couple questions. I have a few different loans from lenders and with a low income.(ie unable to find stable work) have come into a bit of a bind and don’t now what is my best option.i have 38k worth of salie mae loans 10 different loans(4 stafford and 3 direct subsidized and direct unsubsidized) from school that i have forbarance on since i was disable with siesures for a year and haven’t gotten back on me feet yet. and want something like $450 a month minimum payments (if i add them all up).

    Also from starting school Chase Student loans gave me 18k and after schooling came into siesures and exhausted my grace period. unfortunatly that loan got chargend off in dec 2012.. i got the call and immediatly pinched my budget and now pay the collection agency 280$ every month towards that chase dept..( i have called chase and only way to get ok with them is make a deal to settle for amount then they’ll give 6 months to pay off? Should i try this to get it out of the way or just continue monthly payments?) i want to make head way with the Salie Mae but don’t even know where to begin with.. since i am in no shape to make 700$ plus a month payments.. also i am planning on moving to texas after new years so trying to get a little help

    • Thomas Bright

      Hey Jay,

      Good question and a tough situation to be in. Hope your luck turns around soon! It might be a good thing that you are in forbearance. Of course, your interest is still accruing but you are buying some time. When that time is up, it might make sense to apply for the income-based repayment plan. This should help you secure reasonable monthly payments, and the plan is based on 25 years instead of 10. Hopefully once your situation turns around, you can make bigger payments toward that 38k and beat the 25-year timeline.

      But first thing is first–the Chase loans. I would try to take care of these as soon as possible. They don’t have the safety net of the federal loans and you are really at the mercy of the creditor. I can’t explicitly recommend settlement. Instead, my best suggestion is to contact them, explain every detail of your financial situation, and see what they can do (although it sounds like you have already done this). Try to meet the requirements of whatever they offer and put that debt behind you. Then you will have the freedom to focus on your federal loans, which will be much more forgiving if you make a mistake or hit a bump in the road along the way.

      I guess the one thing I don’t know from your question is the timeline for everything (for instance, how much longer you have in forbearance). If it is about to end, then you will be getting pinched even more, but this may make Chase a little more flexible in working with you. I think once you get those loans behind you, you will be in a much better spot.

      Wishing the best for you – good luck!

  • Great article. I’ll throw another question in the mix. I have HUGE federal student loans(stafford and PLUS) from dental school, like over $400K. I’ll be graduating in 6 months and want to know my best option. Should I be doing income based repayment or Pay as you earn, and let them forgive what’s left of my loan after 20-25 yrs or should I be hammering the debt away with any spare money using bimonthly payments, paying more than the minimum, etc. I don’t foresee me paying off this much debt even as my income increases down the road. Thanks!

    • Thomas Bright

      Hi Jordan,

      Wow that is a hefty debt amount. I can certainly sympathize with you on that one. I am honestly not sure which forgiveness programs you will qualify for, though. I know there are several for doctors, dentists, etc. but these are for those who serve communities with limited access. If you aren’t able to qualify for forgiveness, then I certainly think it’s worth pursuing an income-based plan.

      I guess one piece of good news is that as a dentist you should be making a fairly high salary. If you make $100K per year and have student loan debt of 400k, you are basically in the same position as someone who makes 30k and has 120k in loans, and this is fairly common. If I were you, I would make some short-term sacrifices early on, try to save close to 50% of your income, and then pay your loans off in 8-10 years.

      I think the sound of 400k in debt is terrifying, but if you have a stable job as a dentist, you will make it. Putting the loans on a payment plan can help, but also use the method outlined here.

      Thanks for reading, and good luck!

  • Tenessa

    Hi Thomas,

    I have approximately $70,000 in student loan debt. This includes loans from undergrad and graduate school. I have combined both loans into one with hopes of qualifying for a loan forgiveness program. Do you have any other suggestions on how to pay such a large amount off quicker? My current monthly payment average $250 per month. Anymore than that would be impossible.

    • Thomas Bright

      Hi Tenessa,
      It sounds like you are in a fairly tight spot. It’s good that you are paying $250 each month, and if that’s the most you can afford right now, then that is completely fine. If money is really tight, it might be a good idea to try to establish an emergency fund rather than paying a lot of extra toward your loans. That way, you will be prepared for any unexpected challenges/situations. In your case, I would recommend just doing the best you can ($250 if that’s the most you can afford) and then look for ways to make other income. What are your hobbies or skills? Try to put these to use to make more money on top of your regular job. That can certainly help you build a cushion and/or pay off more of your debt while you advance your career.
      Wishing you luck!

  • I’m so glad I came across your site. My husband and I pay a minimum payment of $1200+/month for our student loans (about $70k each) and we’re on a single income. We really don’t want to be paying these loans for the next 15 years but we can’t afford to pay too much more than the minimum until our baby is older and we have dual income. My question is, what would you do if you were drowning in student loan debt? Would you refinance? Would paying $50 more a month make a difference? If we were to receive a chunk of money (i.e. bonus, tax return, etc…) what should we apply that money to? Interest, principal..? Both loans (his and mine) are a group of Sallie Mae loans with different interest rates. Thanks for the info!

    • Thomas Bright

      Great questions, Chris.
      When you say your loans are Sallie Mae, I take it they are private loans..? If they are federal by chance, then make sure to leverage the federal repayment programs such as Income-based repayment. This isn’t technically “refinancing” but is just a payment plan to better fit what you can afford. These programs will likely be a HUGE help for someone in your situation. If they are private, then this may not be an option. In that case, I would go to Sallie Mae directly and ask for one of their repayment plans; explain your entire situation to them. You can read more about these programs here. Otherwise, you could consider refinancing, but again only if these are private and you get a much better interest rate. As for your questions about bonus, tax return, etc… YES. Assuming you have an emergency fund of some sort set aside, I would recommend putting this extra money toward your debt. You are in a tight situation, but it will be a little easier if you are able to leverage some sort of repayment plan.
      Best of luck!

  • Hey Thomas,
    All 3 of my loans are consolidated and my lender will not let me change this. My overall balance is about $12,000. Does it make more sense to make more payments (2 times a month) or save up over a few months and pay a larger amount? I feel with making bi-weekly payments, all I’m paying off is the interest. I feel I’m not going far and the balance doesn’t really seem to decrease. Help!

    • Thomas Bright

      Hi Amber,
      That’s a good question, and I’m sorry to hear that you feel like you aren’t making progress. I want you to know that you ARE doing the right thing though–even if it doesn’t feel like it. Making extra payments on a bi-weekly basis will actually keep interest at bay and allow you to pay more toward the principal than if you wait to make a really big payment after a few months.

      Let’s say your minimum payment each month is $150, but you actually have $300 to contribute each month. Well you could pay the $300 all at once in the beginning of the month, or if some of that money is coming from a paycheck you get later in the month, it could be smart to pay $150 early in the month and the other $150 later.

      On the other hand, you could just pay the minimum for six months and save the rest. Over six months you would have saved $900 (150 x 6). When you put this toward your loans it will feel like a big payment, more powerful than just $150 each month. However, over those six months, more interest will have accrued and thus your $900 will actually be LESS effective than if you paid it in $150 increments over those six months. Hope that makes sense, and thanks for reading and posting your question!

  • Jesse Veenkant


    So, I have begun making payments for my student loans recently, just under $30,000 which isn’t too bad. The service I use lets me pick which specific loans that I want to allocate my extra payment to on top of the minimum payment I am required to make (ex. if my minimum payment is $250 and I pay $500 a month, I can choose where to put the extra $250). This is a nice feature that I like.

    I know I am supposed to pay of the loans with the highest interest rates, but what if there are multiple loans that have the same highest interest rate? I have three loans, each with an interest rate of 6.8% (the highest of all the loans).

    My question is: Do I try to knock out these 6.8% interest rate loans one at a time (put all my additional payment to this loan) or should I allocate the extra payment such that I am paying off each of these 3 loans at the same time?

    Thank you,

    • Thomas Bright

      Jesse, thanks for stopping by.
      That’s a great question. It’s similar to the question someone else had (above) but slightly different, too. Here’s the deal. It will make the most mathematical sense for you to pay your extra toward the loan with the highest total (including accrued interest). As the balance comes down and levels out to be near/equal to the others, you can then distribute the extra payments equally across all three loans.

      Hope that helps, and thanks again for stopping by.

  • Hi. This article provided so much insight. Thanks! I had a question regarding a lump some payment. I know you covered refinancing in a previous article, but I had a somewhat more specific question. My family was shocked at the current rate of interest accruing on my $65,000 loans from grad school. Since I am in no condition to currently pay them off right now, they suggested that I take a personal loan (not gift, since I will be making payments to them once I find steady employment) and pay off the federal loans. They are going to charge me an interest rate that is lower than the fed loan rate… but I am wondering if this is a good idea? Any advice will be appreciated.

    • Thomas Bright

      That’s a great question and one that I honestly have not done a lot of thinking about. It’s awesome that your family is so willing to help you and it certainly can work. You know a lot more about your relationship with your family than I do, and my biggest concern would be just making sure not to let this issue become a divisive one in your family. But I’m sure you have already thought about that.

      From a financial perspective, this is obviously a great alternative to the rates you face on your loans now. It looks like your personal loan would require an interest rate of 3.37%, according to the current Applicable Federal Rates (AFR) from the IRS. Let’s just assume that your fed rates would be 6.8%. Under a standard repayment plan, this would come to a total of $89,763 and almost $25k would be in interest. At the rate of a personal loan, you would pay $76,657 and only $11,657 of this would be in interest–HUGE difference.

      I just have two words of caution. First, if you are going into public service it may be better to make payments and then see if you can qualify for Public Service Loan Forgiveness. Also, regardless of your occupation and future plans, just make sure that you are willing to give up your federal loan safety nets. Obviously, the personal loan has an incredible interest rate, and you clearly have the support of your family. Just remember that if something goes wrong and you fall on hard times, you still may not have as many resources at your disposal.
      That’s the best advice I can give, and I hope it’s helpful. Thank you for reading and commenting, and I’m glad you enjoyed the article!

  • This blog was… how do I say it? Relevant!! Finally I’ve found something
    which helped me. Thank you!

    • Thomas Bright

      That’s great to hear Sharyn! We are glad that it helped you, and best of luck with your student loan repayment!

  • Dear Thomas,

    I am a 30 year old that has a lot of student loan debt… about $60,000. My total monthly payment is around $500 and I can’t pay anything else other than the minimum payment. I have been wondering if I should try to obtain a personal loan through my credit union to pay the total off. I was hoping if I did this my interest rate would be lower and I would pay it off faster (right now I will probably be 60 when it is paid off). Any suggestions?

    • Thomas Bright

      Hi Rachel,
      Thanks for reading and asking your question! You are asking about refinancing. We covered this topic here but this is still a great question. It really comes down to what type of student loans you have. If these are federal loans, it’s probably a bad idea to essentially transfer these to a credit union loan, because federal loans have such great safety nets. Instead, it might be in your best interest to see if you qualify for any of the federal programs that could make your repayment easier. A student loan counselor can help with this.

      On the other hand, if these are private loans that don’t have any clear benefit/safety net AND you can get a lower interest rate with the credit union loan, then that could be a smart option for you. Best of luck!

  • Hey Thomas,

    Great article. I have a question about lump sum payments. I was accepted into the NHSC loan repayment program. I recently received a lump sum of $60,000 into my bank account for the government to put towards my federal loans, which amount to about $65,000 with all interest currently. Do you have any tips when it comes to applying this money? The loans are in 5 different groups, all with the same interest rates, but some with different principal balances. Would the best way be to use the money to pay off the highest principal balances? I am still a little unclear when it comes to paying off interest vs accrued interest vs principal balances. Any help is much appreciated.


    • Thomas Bright

      Dan, it’s great to hear that the NHSC is giving you this type of assistance. Congratulations!
      Since all interest rates are the same here, you will want to look at each loan based on principal + accrued interest. Rank these in order of highest to lowest and pay the highest first. I would imagine that the highest principal accounts will also have the highest accrued interest, but I suppose this could vary by situation. Since all interest is the same, any accrued interest can basically be thought of as extra principal. I think you see what I’m saying here, but I’ll elaborate with a simple example.
      If you have Loan 1: $4,000 principal with no accrued interest AND Loan 2: $3,500 principal with $750 accrued interest, then Loan 2 should be the priority. This is because it is now essentially a $4,250 loan and has the same interest rate as Loan 1. As always, make sure you communicate this to your lender(s) directly so your payments are distributed properly.

      Thanks for reading and commenting!

  • Is student like like a mortgage where you can pay towards the principal and pay off early?

    • Thomas Bright

      Hi Regina,
      Yes, you can do this. The only issue is that different lenders process extra payments differently. You need to become aware of the policies used by your lender(s) and communicate to them in writing if you would like your payments applied in a particular way. As a general rule, many lenders first apply the extra payments to any outstanding interest, then to the principal. This is frustrating because of the way loans are grouped together. The lender might put some of your money toward an account with a lower interest rate, when really it would be more efficient to put it all toward the highest interest account, ignoring any accrued interest. One good workaround (which I will add to this post later in the week) is to make your extra payments on the same day as your normal monthly payment. That way, there won’t be any accrued interest and all your extra funds will go to the right place. That’s a start while you wait to hear back from your written request.

  • stephen

    I have been making payments on my student loans for over a year now. I usually pay two to three times the minimum payment. After checking my account i realized my loan provider has been crediting all the additional amounts to future monthly payments such that i am not due to make a payment for another twelve months. Is there any way i can make them apply all of the money i send straight to the principal since i dont actually owe them a payment till next year?

    Thanks in advance for your assistance.

    • Thomas Bright

      Thanks for reading and posting your question. This can be a fairly common (and frustrating) problem. The best thing you can do is contact the lender directly and explain how you would like your payments to be applied. You can do this over the phone, but I suggest also doing it in writing. The CFPB actually just released a sample letter template for exactly this situation. I will post a link to the template in this blog post ASAP. Good luck, and let us know how it goes when you reach out to your lender! We would love to hear if it goes over smoothly or if you hit any snags.

  • Thanks for the great article. A quick question:

    My regular payment is $150 for 10 years for a $12,000 original loan. The payments are killing me right now. Would it make any sense to choose a graduated payment, which is about $75/mo for the next couple years but then the payments go up after that? I could sometimes pay maybe $25 extra toward the principal each month. And then if I get a better job in a year or two, I could add more to the minimum? Or should I just try to get a third job and suck it up?

    Please let me know if this makes any sense for a 23 yr old straight out of college, trying to balance fiscal responsibility with eating.

    • Thomas Bright

      Hi Laurie, thanks for stopping by.
      I think you are on the right track! The graduated repayment program is designed for situations like yours: you aren’t making a ton of money as a recent graduate, and the payments are tough. I totally get it. Like you said, you will start to earn more money over time, as you advance in your career, and then you can put more toward the loan. It could also be worth considering extended repayment or income-based repayment, but since you mentioned “fiscal responsibility,” this may be the best, quickest option for you. According to the federal loan website, your payment schedule will look something like this:

      Period (years) Monthly Payment
      1-2 $86.24
      3-4 $113.50
      5-6 $149.38
      7-8 $196.60
      9-10 $258.72

      At the end of the day, you will pay $19,305.83 instead of around $17,661.98 (if you stayed on the current plan). But of course, you can close this gap if you make extra payments later. Long story short, I absolutely think this is a good idea for someone in your situation.

  • This is a helpful article on paying back student debt. The bullet summary at the end of the article helped me retain the concepts. The first two pieces of advice on the final section (pay more than monthly payment if possible and focus on the amount with the highest rate) is sensible as well as right on target. Making bi-weekly payments would cut the loan time in half even as the debtor would have to pay extra (two monthly payments in one month). The bi-weekly section reminded me of why some people choose 15-year mortgages over 30-year ones (because they would finish paying off the house in twice the amount of time). A homeowner’s monthly payments go up to be debt-free in less time. This is not so much due to the interest rate(s) but a trade-off in getting the debt over with as soon as possible.

    • Thomas Bright

      Thanks for reading, Izzy, and I’m glad you thought it was helpful.

      One point worth clarifying…
      The bi-weekly payment would not be a full payment. It is meant to be half of your monthly payment, but by doing this twice in a month you accomplish two goals:
      -keep interest at bay
      -you make two extra half-payments (or one extra full payment) in a year’s time, since you are paying for 26 weeks instead of 12 months

      Hope that makes sense. Thanks again for reading!