David Bach The Automatic Millionaire

Worried about your student loans? You've got plenty of company.

Student loans hit the hefty sum of $61.3 billion by 2004, according to the College Board's Trends in Student Aid. Half of the graduates of four-year degree programs are in debt. The National Center for Education Statistics reports that the average amount owed upon graduation is $10,000 and rising. Many owe significantly more.

Study law or medicine, and you'll likely end up far deeper in the hole. It's common for law graduates to owe $80,000 or more in student loans. And the American Medical Association reports that public med school grads owe an average of $135,000 when they turn in their cap and gown. That's like having a mortgage to pay without a house to show for it.

Taking on that kind of financial burden before you even start working may seem like a recipe for disaster. But it doesn't have to be.

Leverage Your Education Wisely

Investing wisely in higher education is one of the best financial decisions you can make. More education means higher earnings -- for life. In 2001, according to student lender Sallie Mae, the median earnings of a high school graduate were about $29,000 annually. For those with a bachelor's degree, the number was more than $46,000. Holders of professional degrees, such as law and medicine, racked up median annual earnings of more than $82,000.

Unemployment numbers also drop dramatically as education level increases: College graduates were nearly half as likely to be unemployed as high school graduates, and professional degree holders were nearly a quarter as likely.

So you don't have to have an MBA to see that money invested in education pays off handsomely. Treat student loans like the investment they're meant to be, and you'll reap rich rewards. Treat them like spending money, and you'll always be struggling to pay them back.

With that in mind, here's how to manage your student loans for the greatest return on your investment -- and the least pain when repayment time arrives:

Control Your Expenses

Some students these days use student money to finance their lifestyle, spending the money on meals out, vacations, or other expensive luxuries. Don't do that.

To avoid borrowing (and spending) more than you need while you're in school -- or when you've just graduated and are getting your financial footing -- use popular money management programs such as Intuit's Quicken or Microsoft Money to draw up a budget. Or try this calculator to see how your expenses compare with others in your geographic area and income range.

Know Where You Stand

Whether you're still borrowing or have begun to repay, you need to know what you owe to whom and on what terms. If you've let recordkeeping tasks slide, get a fresh start now using the U.S. Education Department's National Student Loan Data System for an overview of your loans

Get the Best Loan Terms, Rates, and Benefits

Federal loans are generally the best deal:

• Perkins loans for students with exceptional financial need accumulate no interest during school and grace periods, and the interest rate during repayment is 5%.
  
• Stafford loans offer the lowest interest rates -- currently 4.7% during in-school, grace, and deferment periods, and 5.3% during repayment -- plus a variety of repayment options, long repayment periods, and special deferments. The interest rate for Stafford loans is variable and may change annually on July 1 but will never exceed 8.25%.
  
• Parent Loan for Undergraduate Students (PLUS) is a program of federal loans with a current interest rate of 6.1%. As with the Stafford, the rates may change annually on July 1. PLUS loan rates will never exceed 9%.
  
• SMART LOAN consolidation accounts allow some borrowers to consolidate multiple student loans into one federal loan with one monthly payment -- in some cases with a lower monthly payment and a longer term than the underlying loans. Interest rates vary based on the borrower's underlying loan rates but generally range from 4.75% to 6.125%.

For more information on federal loans and to use the Department of Education's loan calculator, go to StudentAid.ed.gov.

Private education loans are offered by a wide variety of lenders. They generally have higher interest rates -- the current average is just under 8% -- but can be judiciously used to supplement federal loans, which have per-year and per-student maximums. The largest private student loan slender is Sallie Mae: www.salliemae.com. Get an overview of current national and local private loan providers and rates at BankRate.com.

Repay on Time

The good credit you build will be invaluable to you when it comes time to apply for a mortgage or other loan. Go to MyFICO.com for products that help you check your credit record and ratings.

Pay the Loan Automatically

Being late on your student loans can ruin your credit. So set up "automatic payment" plans. If you have a 25-year loan, find out the minimum payment per month required and set it up to have your bank debit your account five days before it's due so you won't be late.

Start Saving, Too

I'm often asked if a person should pay their student loans off first before they save for a home or use their retirement account at work. My answer is that if your interest rate is low, and most student loans are, pay the minimum due and focus the rest of your money on getting out of high-rate credit-card debt and towards saving for the future.

Most importantly don't beat yourself up for the student loans you took on to better yourself. You made a great investment when you invested in yourself and your education. Now go use it!

Student-Loan Resources

For more information about student-loans of all kinds, check out these Web sites:

• PrincetonReview.com helps you better understand sources of college funding
  
• SmartMoney.com/college/ and Yahoo! Finance's College Savings center offer guides to saving, investing and paying for college.
  
• SayPlanning.com has a one-stop site for college-planning calculators
  
• FinAid.org is a comprehensive, informative, objective source of education finance information and advice
  
• TheOldSchool.org has information on federal student loans and a free scholarship search service