Five Steps to Reducing Your Student Loan Burden

While student loan debt has become a huge problem for many Americans, the fact of the matter is, even this debt burden is distributed somewhat unevenly. According to a recent research study, in fact, about two-thirds of all student loan debt is held by women, even though only about 10% more women than men have degrees.

That said, regardless of your gender, student loan debt can have the same negative effects on your life and your goals. When student loan debt gets large enough, the debt burden it creates can make it far more difficult to qualify for a mortgage loan, which means you could end up renting for far too long, and it can make saving for the future nearly impossible. The high level of debt can also make it more difficult to budget and then live on it.

That may sound negative, but there is good news, too. It is possible to take control of your student loan debt in a way that makes it more manageable., and this article will share with you the steps you can take to do exactly that. If you take these steps, before you know it, your student loan debt will be under your control.

Step 1. Make Sure You Know How Much You Owe

Since most students get different loans to cover each year or each semester, and many rely on both federal and private student loans, the fact of the matter is, it can often be difficult to figure out your student loan balance. 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, and to avoid loans falling through the cracks. You will have to pay back all of them, but you can't do that if you don’t know where they are.You can check your credit report at AnnualCreditReport.com to find out your total private loan balance, and then you can get the details on each loan by tapping into the National Student Loan Data System. Write down the names of the lenders, as well as the total balances, monthly payments, and interest rates, since that is the only way to get an accurate picture of where you are currently. 

Step 2. Decide If Paying Off Student Loan Debt Early Makes Sense for You

Once you understand your student debt, including the rate, you can then decide if you want to pay any of it ahead of time, or if you'd like to keep making -- and at what rate -- you can decide whether or not you want to pay off any of your loans ahead of schedule or if you'd like to keep making minimum payments. Most federally subsidized student loans default to a 10-year plan for repayment, although many private loans come with different schedules.

Your instinct may be to make extra payments to pay off your loans sooner, but that may not make sense in every situation, since student loan interest rates are often relatively low, and the interest payments may be tax deductible, even without itemizing. In those cases, it may make more sense to put the extra payment money into investments than to pay loans off early. That said, if you have private student loans at a higher rate, it might make more sense to pay those off early.

Step 3. Consider Consolidation and/or Refinancing

If your inventor of loans shows that you have a large number of loans at a higher rate, you should seriously consider loan consolidation or refinancing, as a way of making repayment of your loans easier. Keep in mind, though, consolidation and refinancing are not the same thing, so you work differently, though, so you have to make sure you understand how each process works.

In order to group all your federal student loans into one big loan, you can get a Direct Consolidation Loan from the Department of Education. With a Direct Consolidation Loans, you can only consolidate your federal loans, not private loans. Your interest rate for such a consolidation loan will equals a weighted average of all consolidated loans, so you are unlikely to see reduced interest costs using this approach. That said, with a consolidated loan, you can perhaps open yourself up to more repayment plan options, including some plans that stretch repayment over as much as 30 years.

It is also possible to refinance your student loans with a private lender. In fact doing so means a greater chance of reducing your interest rate if you manage to qualify for a new loan at a rate below what you're currently paying. In some cases, borrowers have taken out mortgages to consolidate their student loan day, which can cut the interest rate significantly, while also giving you the choice of paying them off more quickly or stretching smaller payments out over several decades.

One other thing to keep in mind is that, while federal student loans can be consolidated, that consolidation may mean means giving up borrower protections, such as  income-based payment options, as well as the possibility of Public Service Loan Forgiveness. However, balance that with the simplified repayment of just one loan and one payment to make every month.

Step 4. Choose the Right Loan Repayment Plan for You

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, a number of different income-based plans, or plans that allow payments to start small and rise slowly over time. One thing to keep in mind is that income-based plans also open the door to loan forgiveness after a certain number of on-time payments.

Be certain to research each payment option thoroughly and consider both your current financial position and how the monthly payment will fit in, and also how much total interest you will 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.

Step 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 many lenders will also discount your interest rate.

Student loan debt can be a burden, but only if you let it mess up your financial life. If you become proactive with regard to your 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, with a student loan burden, but it's apparently a bigger problem for women, according to Merrill Lynch.