Step 1 - Understanding your loan
To fulfill your repayment obligation and build a strong credit history,
you need to understand the terms of your student loan, develop a realistic
budget, choose the right repayment option and make timely payments.
Colleges generally conduct exit interviews with seniors during which a
financial aid counselor reviews the student's total indebtedness, the repayment
options available and when repayment begins. Most loans give you six months
of breathing room, but some require that you begin repayment immediately.

Step 2: Budget, budget, budget
Good financial planning starts with sound budgeting. To determine
how much you can afford to pay toward your debt each month, you will
need to compute your income and expenses. In terms of estimating your
income, be sure to take into account that the pay you are quoted is not what
you will be taking home. Taxes and a variety of other payroll deductions, such
as medical insurance, are going to result in a paycheck that may be considerably
less than you expected.

Once you have determined your take-home income, you can realistically
predict your monthly payments. Add up your living expenses such as rent,
utilities, food, car and transportation expenses, and recreation. If you're not
sure where you spend your money, you might want to keep a written record of
your expenses over a few months. Student loan borrowers are typically advised
to keep their monthly student loan payments within eight to ten percent of their
monthly incomes. This guideline ensures that borrowers have enough discretionary
income to cover other living expenses, as well as an occasional pizza or movie.

In addition to paying off your debt, CPAs emphasize the importance of
saving some portion of your pay each month. It doesn't have to be a lot, but it
should be regular. Once you've done that, its not too early to start thinking
about saving for retirement.

Step 3: Choose a repayment option
Your loan balance and interest rate determines your monthly payment
amount. As a general rule of, you can plan on paying about $125 per month
for every $10,000 you borrow. The repayment options available to you depend
on the type of loan you have.

Most borrowers choose the standard 10-year equal-installment plan
that requires you to make payments of equal amounts over a maximum of
ten years. This plan carries the highest monthly payment, but costs less over
the long term because you pay less interest. Students who cannot meet the
monthly payments required by the standard repayment plan may choose the
graduated payment or income-sensitive plan. With a graduated payment plan,
your payments start out low and rise every few years, on a fixed schedule. This
option makes sense if you are just starting out in a career and expect your income
to increase steadily. Another option, the income sensitive plan, adjusts annually to
reflect changes in your income. CPAs recommend that you avoid stretching out
the term of your loan unless it is absolutely necessary that you do so. While
flexible payment options reduce your monthly payment, adding extra years to your
loan means you will pay more interest over the life of the loan.

Step 4: Make timely payments
Once your repayment period begins, it is important that you make
regular payments. Failure to do so may result in a ruined credit rating,
substantial collection cost and lost opportunities in employment and in
purchasing a car or a home. If you are having trouble making your payments,
it is important to contact your lender. Mot lenders are willing to work with you to
make repayment easier. You may be eligible for a deferment, which allows you
to put off payment for a while if you are unemployed, returning to school, or on
parental leave. If you don't qualify for a deferment, you may be able to postpone
payment through forbearance. Under forbearance, the lender allows you to stop
making payments for a short period of time (though the interest on your loans will
continue to accrue). Another option, consolidation, affords you the opportunity to
lower your monthly payment by consolidating your loans and extending the term
of your loan up to 30 years.

Step 5: Deduct the interest
CPAs point out that as a result of a recent change in tax law, there's
one more step you'll need to take and this one will save you money.
Student loan borrowers with income may be able to deduct all or part of
the interest paid on qualified student loans. If you qualify, you may deduct
$1,500 in student loan interest for 1999. That amount will rise in $500
increments until it reaches $2,500 in 2001. This deduction is available whether
or not you itemize. Only interest paid during the first 60 months in which
interest payments are required is deductible.

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