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Drowning in Student Loan Debt? Here's How to Handle It

Student loan debt is a big problem for many Americans, but the student debt burden isn't distributed evenly. According to recent research by Bank of America Merrill Lynch, two-thirds of all cumulative student loan debt is owned by women. And just 11% more female than male millennials have degrees.

Unfortunately, no matter your gender, student loan debt can interfere with other life goals. Your substantial debt burden can make it harder to qualify for a loan to buy a house, for example, while your monthly student loan payments can make saving money and living on a budget more difficult.

The good news is that you can take control of your student loan debt so it becomes much more manageable. Just take these steps to get started.

Image source: Getty Images.

1. Make sure you know the total you owe

It can be confusing to even figure out your total student loan balance, since most students get different loans to cover each year or each semester, and many rely on both federal and private student loans. To avoid having loans fall through the cracks, make sure you have a complete list of all the loans you've taken out so you know exactly what you're trying to pay back.

You can check your credit at AnnualCreditReport.com to find out your total private loan balance and can use the National Student Loan Data System to get the details about your federal loans. Write down total balances, monthly payments, interest rates, and lenders so you'll be able to see at a glance what your current obligations are.

2. Decide whether paying off student loan debt early makes sense for you

Once you know what student debt you have -- and at what rate -- you can decide if you want to pay off any of your loans ahead of schedule or if you want to keep making minimum payments.

Most loans default to a 10-year repayment plan, although some private loans may have different schedules. If you want to pay off your loans sooner, you could make extra payments, but doing this might not make sense in every situation. That's because student loan interest rates are usually relatively low, and interest may be tax deductible, even without itemizing, unless your income is too high.

If you could earn a better rate of return on your money by investing it than by paying back your loans early, especially after factoring in the savings from the student loan interest deduction, it makes no sense to throw a ton of money at early student loan repayment. But if you have private loans at a higher rate, working on paying those loans down as fast as possible is often a smart financial choice.

3. Look into consolidation and refinancing

If you have multiple loans, consolidating or refinancing could make repayment easier. Consolidation and refinancing work differently, though, so be sure to understand each process.

If you want to group all your federal student loans into one big loan, you could get a Direct Consolidation Loan from the Department of Education. Direct Consolidation Loans only allow you to consolidate federal loans, not private loans. Your interest rate equals a weighted average of all consolidated loans, so you don't reduce interest costs with this approach. But you could open up the door to more options for repayment plans with federal loan consolidation, including some repayment plans that stretch out payments for as long as three decades.

Refinancing student loans with a private lender is another alternative, and one that could actually allow you to reduce your interest rate if you qualify for a new loan at a rate below what you're currently paying. Both federal and private loans can be consolidated, although consolidation of federal loans means giving up income-based payment options, the possibility of Public Service Loan Forgiveness, and other borrower protections.

Refinancing can simplify repayment by giving you just one loan to pay, can reduce your monthly payment, and can reduce the total owed -- but only refinance private loans unless you're certain you won't use borrower protections of federal loans and can save money on interest.

4. Choose the right loan payment plan

When you've got your loan with a private lender, you have to stick with the payment plan you agreed to when you took out the loan unless you refinance. But with federal student loans, you have a number of repayment options, including a standard 10-year plan with fixed monthly payments, several different income-based plans, or plans that allow payments to go up slowly over time. Income-based plans also open the door to loan forgiveness after a certain number of on-time payments.

Be certain to research each different payment option and consider both what your current monthly payment will be and how much total interest you'd pay over time. Switching to a longer repayment timeline frees up more money today to do other things, but the trade-off is that you pay more interest in the long run.

5. Automate your student loan payments

Once you've chosen a payment plan, set up autopay for all of your student loans. You can either opt to autopay just the minimum due, or you could autopay a higher amount if you'd prefer to get your loans paid off early. Automating payments ensures you pay your loans on time so you can build credit, and it can also score you a discount on your interest rate with many lenders.

Don't let student loan debt mess up your financial life

By being proactive about handling student loans, you can keep your monthly payments affordable and make informed choices about when and how to pay off what you owe. This is important for everyone burdened with student loans, but young women especially need to take note, since the student debt burden falls more heavily on their shoulders. The good news is, you now know what steps you can take to formulate a plan for your student loans, so get started today.

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Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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