Your stomach is in knots. Your palms are so sweaty you can’t hold your pencil. It’s the first time all semester that you haven’t done your calculus homework. And you’re convinced the teacher is going to call on you next.

Many students (and parents) experience that same feeling of dread when they think about paying for college. They worry that they haven’t done their financial planning homework. They fear being caught unprepared when it’s time to pay.

If you fit into this category, first take a deep breath . . . then take a minute or two to read this page. Even if you and your parents haven’t been saving for college since before you were born, it’s not too late for some wise payment planning. Here’s a three-step plan to follow during your senior year.

Step One: Apply for financial aid!

Once you’re ready to submit your college applications, find out which financial aid forms are required by the schools you choose, typically the FAFSA (Free Application for Federal Student Aid) and the college’s own aid application. Fill those forms out carefully and return them before the published deadlines. This will accomplish two things: • It will make you eligible for aid, including federally-backed student loans, and it will tell you your ‘expected family contribution,’ or EFC, which is determined by a federal formula. The aid ‘packages’ you receive in the spring may cover your entire EFC or just some of it. If the latter, you and your family have ‘unmet need,’ the portion of college costs your family must pay. If more than one college admits you, compare aid ‘packages;’ the most favorable ‘packages’ are those that offer more in grants and less in loans. Copies of the FAFSA are available in your school guidance office (or online at www.fafsa.ed.gov/); you need to file the form as soon as possible after January 1 of the year you’ll be attending college.

Step Two: Tap existing savings and current income

If you and your family have set aside at least some money for college—through investment funds, zero coupon bonds, or other savings—these are the funds to turn to first when planning to pay your family’s share of college costs. Now you (and your parents) need to look closely at your family’s monthly budget. Determine how much you can afford to pay from current income . . . and stretch that amount to the limit. Maximize your payments and minimize your debt—that’s the formula for a smart payment strategy.

Did you know that many schools offer tuition payment plans, which allow you to divide your college bill into 10 or 12 monthly installments without having to pay any interest costs? Your payments become part of your monthly budget, just like your rent or car payments. If it’s possible to use a payment plan and make your payments using a combination of current income and savings, you can save thousands of dollars in interest fees. The less you have to repay after graduation, the more you’ll have to spend on items that are important to you as you start your career. Often, such payment plans are administered not by colleges but by companies who work on behalf of colleges and families. One such company is Academic Management Services; you can get information about such plans and about student loan options from them.

Step Three: Borrow, if necessary

After combining financial aid, current income, and savings, your family may still come up short and need to borrow. Student loans should be your first recourse because they offer the most favorable rates and repayment plans. The Federal Unsubsidized Stafford Loan, part of the Federal Family Education Loan Program, is a widely used student loan, and it’s available to families at all income levels.

Your parents may also want to consider a Federal PLUS loan. This is a low-interest loan available to credit worthy families, also regardless of income. PLUS loans may be used to fund up to the full cost of education, minus the amount you receive in financial aid from the college.

Follow these three steps and you and your family are on the way to an A+ in Managing Tuition Payments 101. Now, how about finishing the rest of your homework?

William A. Hastings is President and CEO of Academic Management Services.