Question

Since all of the student loans are not issued at the same interest rate over the course of a student's education year, once the student graduates and begins working and is starting to pay back the loans as they should

A) defer payment as long as possible.
B) make only the minimum payments.
C) prioritize the loans from highest interest rate to lowest interest rate and use excess cash flow
to make additional payments on the high rate loans.
D) pay all loans at an equal pace since they all count in your credit score

Answer 1

For efficient student loan repayment, prioritize paying off loans with the highest interest rates first. This avalanche method reduces the total interest paid over time and can lead to quicker debt elimination. Ensure to make minimum payments on all debts to maintain a good credit score.

Step-by-step explanation:

When considering how to repay student loans, the approach that often makes the most financial sense is to prioritize the loans with the highest interest rates. This strategy is known as the avalanche method, where excess cash flow is used to make additional payments on the loans accruing the highest interest.

Doing so can save money over the long term by reducing the total amount of interest paid. Essentially, paying off loans with higher interest rates first is beneficial because: Higher interest rates mean more of your payment goes towards interest rather than reducing the principal balance.

Paying loans with high interest rates faster can decrease the total interest accrued, thereby reducing the total cost of borrowing. This method will often result in paying off debt quicker compared to evenly distributing payments across all loans.

While all loans affect your credit score, and it's important to make at least the minimum payments on all debts to maintain good credit, targeting higher interest loans can be the most cost-effective strategy in the long run.