Is there a most efficient way to pay off multiple loans with the same interest rate?

My Situation:

  • About $36k USD in graduate student loans.

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

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

    • $10k w/ ~$1k in unpaid interest

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

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

  • All loans are in repayment.

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

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

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

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


One Response to “Is there a most efficient way to pay off multiple loans with the same interest rate?”

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

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

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

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

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