Student Loan vs. Auto Loan: Which Should I Pay Off First?

By Adam Levy – Updated Sep 10, 2024 at 2:49 PM

Key Points

Pay down auto loans first due to lack of forbearance options and potential vehicle repossession.
Federal student loans offer income-based payments and possible loan forgiveness.
Interest on student loans may be tax deductible, adding a financial benefit.

Prioritizing student loans vs. auto loans is a challenge many young adults face when deciding to pay down debt. The decision isn't always obvious since federal student loans offer many different repayment options and the potential for debt forgiveness. Here's everything you should consider in your quest to get rid of your debt.

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Loan agreement with pen and calculator. — Image source: Getty Images.

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Some factors still favor paying down the student loan, though.

You can defer payments on the student loan if you return to school.
The interest paid may be tax-deductible.
If you declare bankruptcy, it'll be much more difficult to remove the student loan debt than the auto loan.

You should consider the likelihood of those events and the impact they could have on your finances. If you don't plan on returning to school and already have a steady career, paying down the loan with the higher interest rate will help you reach debt-free status sooner.

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Savings Account

A savings account is an account that earns interest with a financial institution.

Ultimately, it comes down to how much appetite you have for risk. If you're dead set on paying down your debt, use the above information to make an informed financial decision and start tackling your loans.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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