IT'S NO SECRET THAT HIGHER EDUCATION COSTS ARE ON THE rise. Over the last two decades, the price of attending two- and four-year public and private colleges has grown more rapidly than inflation and family income. In fact, last year the average tuition and fees for four-year public colleges rose nearly three times faster than the national inflation rate.

Consequently, students of all economic levels are borrowing money to help finance their education. According to a report issued by the National Center for Public Policy and Higher Education, only 17% of the highest-income families borrowed for college in 1990, but that figure increased to 45% by 2000. In addition, the U.S. Department of Education reported the average amount of debt incurred by a public college graduate totaled $16,243 in 2000; those who attended private colleges incurred $17,613 in debt. For those who pursue graduate degrees, "Upwards of $100,000 [of debt] is very common, which is very scary," says Erica Sandberg, chief financial writer and media relations manager for Consumer Credit Counseling Service in San Francisco.

As grim as such figures are, there is some good news for student borrowers. Statistics show that more education still leads to higher salaries, and the College Board estimates that over a lifetime, those with a B.A. or higher earn over $1 million more than those with a high-school diploma.

Now is a good time to get a handle on your debt since interest rates for Federal Stafford Loans have hit an all-time low. So don't approach your loans begrudgingly. The debt you incur while studying can be an important investment in yourself.

Fern Williams White, 31, a 1999 graduate of Clark Atlanta University with an M.B.A. in finance, can attest to the benefits of investing in higher education. "I definitely don't have any regrets about pursuing the degree; my salary has pretty much doubled," White says. She is currently an account associate for a financial services firm in Atlanta and earns $60,000 per year.

White received her B.A. in economics from Earlham College in Richmond, Indiana, in 1994 and financed the degree with mostly scholarships and work-study, graduating with only $6,000 in student loan debt. After working for a nonprofit housing agency in Philadelphia for three years, she enrolled at Clark Atlanta in 1997 and relied heavily on loans to pay living expenses. Although she earned her M.B.A., she also racked up around $50,000 in student loan debt. "I was aware of what I was getting into," she says. "I was thinking that within five years of [graduating], I would go back and get my M.B.A. [because] I wanted to work in the corporate world."

White got a handle on her student loan bills soon after graduating by consolidating all of her Federal Stafford Loans. By consolidating the five payments she was making to separate lenders, White now makes a monthly payment of $391, saving her about $150 a month. "I just wanted to simplify my loans and get more favorable interest rates," she says.

White's consolidated Stafford Loans account for about $280 of her monthly bill and have a fixed interest rate of 7.375% over a 20-year term. A private CitiAssist Loan with a variable interest rate makes up the remaining total. Today, White's postgraduate balance is down to $46,500 and she doesn't view her student loan debt in a negative light. "It's just a part of me getting from point A to point B," she says. "I've been able to manage it and it's not deterring me from pursuing the lifestyle that I want."

GETTING A GRASP ON YOUR DEBT

Consolidation--taking out a new loan to pay off old ones--can be a good option for anyone looking to reduce large student loan bills. Those with at least $7,500 in federal loans are eligible to consolidate, and recent graduates should seriously consider the option. It's important to consider the long-term impact of student loans on your ability to establish an upscale lifestyle, buy a brand new car, or purchase a home. Financial planners advise that those considering large purchases such as buying a home get a grip on their debt first.

White's advisor, Atlanta-based financial planner Sterling Laylock, says loan consolidation helped improve her credit profile as she and husband, Garrick, 31, shopped for the home they purchased in September 2000. "Consolidation can help people with their debt-to-income ratio if they need to go under the scrutiny of any kind of lending institution," he says. "If their student loan payments are too high, it can exclude them from purchasing a home." In most cases, mortgage lenders are still apt to turn you down if the amount of your total annual debt is 38% above your annual income, although some programs may allow a higher debt-to-income ratio.

When you consolidate your loans, you convert them from a variable rate to a fixed rate loan. That's why it's so attractive right now. Interest rates are low and you can lock in these rates over the life of the loan. Federal law mandates that your new loan feature the combined balance of the previous loans, as well as a weighted average of the interest rates of all your loans adjusted up to the nearest one-eighth percent. The rate cannot exceed 8.25%.