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Managing your money effectively after you leave school means you'll be able to meet your financial obligations, including your Direct Loan payments. The keys to effective money management are making a budget and sticking to it.

Your monthly Direct Loan payment is just one part of your budget. By repaying your Direct Loan responsibly, you'll establish a good credit rating and be well on your way to declaring your financial independence.

1. Calculate your expected income
   Use your pay stubs, bank statements, and last year's federal tax return. Most of your income will probably come from job earnings. If you don't know what job you'll have after you finish school, you can get salary estimates from resource materials available in your school's placements office. You can get an idea of entry-level salaries in your field by checking newspaper want ads. You can also get salary information from the Directory of Occupational Titles, published by the U.S. Department of Labor.
   
   Remember to calculate your net monthly salary—the amount you have available to pay your bills after federal, state,and Social Security taxes, Medicare, and other deductions are with-held. One way to estimate a monthly amount is to divide your total annual salary by 12 to get your gross monthly salary, then subtract 25 percent to 30 percent for taxes. The result will be your net monthly salary. Next, add other resources, such as gifts and income tax refunds. Total your monthly and yearly resources.
   
   
2. Calculate your expected expenses
   Collect basic information from your bills and checkbook. In calculating your expenses identify them as "fixed" or "variable." Fixed expenses are those that occur routinely each month and are usually for the same amount, such as your rent and car payment. Variable expenses may be items such as utility bills, groceries, and entertainment. You can more easily control variable expenses if you want or need to do so. Remember that not all your expenses-fixed or variable- will occur every month. For example, car insurance premiums are often paid only twice a year. But if you take the annual amount and divide it by 12 months, you can account for the expense in your budget as a monthly "savings" item so that you will be prepared to pay the bill later.
   
   The following expenses should be included in your budget:
   
   - Transportation
   - Food and Personal Expenses
   - Direct Loan Payments
   - Other Debt (credit cards, for example)
   - Insurance
   - Health Care
   - Dependent Care Savings
   - Miscellaneous
   
   Now, total your monthly and yearly expenses.
   

3. Calculate the balance
   The balance is determined by subtracting your total expenses from your total income. The balance will give you a useful figure on which to base your selection of a repayment plan for your Direct Loan.
   
   If your balance is negative-your expenses are greater than your income-you need to find ways to reduce your expenses or increase your income. This will help ensure you can make your student loan payment.
   
   If your resources are greater than your expenses-the balance is a positive dollar amount-you may select a loan repayment plan with a higher monthly payment so that your loan will be paid off as soon as possible with as little interest as possible.
   
   
4. Stick to your budget
   Now that you have established a budget based on your expected income and expenses it's important that you keep track of your actual spending. This will help you determine whether your budget is working and what adjustments need to be made. If you have trouble staying within your budget, keep an expense record to figure out where your money is going

What if I have questions about my Direct Loan?
If you have any questions about your loan, please call the Direct Loan Servicing Center.

What is a Budget?
A budget is a plan for the most effective use of your income. It defines your expected expenses and the income you have available to pay them. A budget helps you plan for the future. It will help you select from the four Direct Loan repayment plans the one that suits you.

How do I set up an out-of-school budget?
The four steps in achieving a successful out-of-school budget are

• calculating your expected income
• calculating your expected expenses
• determining the balance (the difference between your income and expenses)
• keeping to your budget

Make your budget for a fixed period and review it regularly. A one-year budget broken down month-by-month will create an accurate picture of your economic situation. The expenses and income you are comparing should be for the same period.

Direct Loans
William D. Ford Federal Direct Loan Program


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