Q: If I have both private and federal student loans, and have the ability to pay off a few student loans completely, should I pay off the private student loans or the federal student loans (which are both around the same interest rate)?
A: Even though the interest rates on private student loans and federal student loans can be similar for some borrowers, keep in mind the interest rates on private student loans are variable, meaning they can fluctuate. Though interest rates are important, when it comes to student loans, borrowers have many more repayment options and programs with federal student loans. It may seem to make more sense in the short-term to pay off the federal student loans, if they are at a higher interest rate than the private student loans, however in the long-term, paying off the private student loans may prove to be more beneficial.
Private student loans, unlike federal student loans, have very limited options when it comes to repayment and/or flexibility in terms. Should you fall upon hard financial times in the future and are unable to make your student loan payments, you will have very few options with private student loans. If you are unable to make the monthly private student loan payments, this could lead to your credit being damaged or much worse. With federal student loans you have more options, flexibility, and security when it comes to repayment. As with all financial decisions, consulting one-on-one with a financial professional who can assist you with your specific financial situation is recommended.