For grads only: Payback time

Good fiscal behavior can save you dollars and cents

As heavy a burden as student loans are to repay, there are five ways to lighten the load, or at least make it more manageable:

1. Pay regularly and on time. If you make 48 consecutive on-time payments, most private lenders will knock 2 percentage points off your interest rate. Plus, if you direct your bank to transfer payments electronically from your checking account, many lenders will trim a quarter point off your rate.

2. Ask about alternate forms of repayment.
If you have difficulty meeting your payments, ask about alternate repayment plans. Assuming your salary will go up over time, you can arrange a graduated repayment plan. You begin with a low monthly payment that slowly rises over a period of 12 to 30 years, depending on the size of the loan.

If your income fluctuates because you're self-employed, you can also set up an income-sensitive or income-contingent repayment plan. As your income rises and falls, so does the amount you owe. Under the income-contingency plan available through the Department of Education for direct-loan borrowers, any balance remaining after 25 years is forgiven, although the amount forgiven will be taxed as income. One caveat: Alternate repayment plans will cost you more in interest because you'll pay back your loan over a longer period of time.

3. Take advantage of tax breaks.
The federal government offers relief for taxpayers with student loans. Presuming your income makes you eligible, you may deduct the interest you pay up to a maximum of $2,500 a year. The income limits to qualify for a full or partial deduction are less than $65,000 annually for singles, and less than $130,000 for couples filing jointly.

4. Consolidate your loans.
If you have more than one loan, you can consolidate them. That means a new interest rate is applied to your outstanding principal. The rate will be equal to the weighted average of all your loans but will not exceed 8.25 percent. During the course of your repayment, lenders may offer discounts, especially if you have a record of timely repayments. If, by consolidating, you lengthen the term of your repayment, that can substantially increase the total interest you will pay.

5. Seek deferments or forbearance, if you need to.
If you've exhausted your options and can't get relief, you may be able to suspend your payments temporarily. If you lose or quit your job, or return to school, you can ask your lender to temporarily defer your loan payments. If you get a deferment for a subsidized Stafford loan, the government will actually pay the interest that comes due during your suspended payment period.

If you can't get a deferment, you can still hold off on payments for up to a year by asking for forbearance. The interest will continue to accrue, but you avoid defaulting and getting a nasty strike on your credit record.