Borrower Profile Steve is graduating in May from graduate school and has the following loans:

Loan Type Loan Amount Disbursement Date Interest Rate

Direct Subsidized Loan $$5,964$ Jan$-096\mathrm{.}80\%$

Direct Unsubsidized Loan $$4,068$ May$-096\mathrm{.}80\%$

Direct Subsidized Loan $$1,278$ May$-096\mathrm{.}80\%$

Direct Unsubsidized Loan $$4,328$ Aug$-096\mathrm{.}80\%$

Direct Subsidized Loan $$3,601$ Aug$-096\mathrm{.}80\%$

Direct Unsubsidized Loan $$22,985$ Oct$-126\mathrm{.}80\%$

Direct Unsubsidized Loan $$22,627$ Jul$-135\mathrm{.}40\%$

Direct Unsubsidized Loan $$21,556$ Sep$-146\mathrm{.}20\%$

Direct Unsubsidized Loan $$4,159$ Jun$-156\mathrm{.}20\%$

Steve earns $$130,000$ per year, and earns a performance bonus that is roughly $35\%$ of his annual income. Steve is married, and has two children. Steve$$s wife earns $$80,000$ per year. They file their taxes jointly, and his wife has an Unsubsidized Consolidation loan in the amount of $$139,000$ at a $6\%$ interest rate. They do not make any adjustments to their gross income.

$1.$ What is the Calder family$$s adjusted gross income?

$2.$ Using the repayment estimator at StudentLoans.gov, input Steve$$s loan and household information and insert a screen shot of

the results generated.

Resource: https:$//$studentloans$.$gov$/$myDirectLoan$/$mobile$/$repayment$/$repaymentEstimator$.$action

$3.$ Which of the plans is likely the best choice for repayment? Why?

$4.$ What criteria would make Steve eligible for Public Service Loan Forgiveness? Describe $($IN DETAIL$)$ what each of these criteria

mean.

$5.$ If Steve chose the IBR or PAYE plan, how many months would be forgiven?

$6.$ If Steve chose ICR, how many months would be forgiven?

$7.$ Which of the three income$-$driven plans would you recommend Steve to use if his goal was to keep his monthly payment as low

as possible until his loans would be forgiven under PSLF and why?

$8.$ What are the tax consequences applied to the forgiven balance of outstanding loan amounts under PSLF$?$

$9.$ What is a debt$-$to$-$income ratio?

$10.$ Steve$$s spouse has a monthly student loan payment of $$1,207.$ Steve and his wife have no other debts, except for their

mortgage which is $$2,675/$month $($principal$,$ interest, tax, and insurance included$).$ If Steve selects Standard Repayment, what is

their debt$-$to$-$income ratio? What is the significance of the result? $($Show your work$)$

$11.$ Keeping all information in question $10$ the same, add two car payments of $$500/$each$.$ What is the Calder$$s new debt$-$to$-$

income ratio? What is the significance of the result? $($Show your work$)$

$12.$ Using the information in question $10,$ if Steve$$s wife were to lose her job, what would happen to their debt$-$to$-$income ratio?

What is the significance of the result? What would happen if they had car payments as suggested in question $11?$ Why is that

significant? $($Show your work$)$

FIN$215$ PERSONAL FINANCE $|$ Student Loan Repayment Case Study

$13.$ Assuming Steve$$s wife lost her job, in regard to her student loans and paying them, what options does she have while she is

looking for a way to replace her income?

$14.$ Why is this not the best strategy, given their debt$-$to$-$income ratio, even after the loss of one income?

$15.$ While their student loan payments are high for the repayment period of $10$ years, so are their salaries. If their salaries are

expected to grow at $5\%$ annually over the next $10$ years, and their student loans are paid off in $10$ years, what is the Calder$$s

expected debt$-$to$-$income ratio, assuming they have the same mortgage payment and no other debt payments? What is the

significance? $($Show your Time Value of Money Inputs and your DTI calculation$)$

$16.$ When are large student loan balances not necessarily a $$bad$$ thing?

$17.$ If you take out too much debt, and don$$t make a ton of money, how does that influence your debt$-$to$-$income ratio?

$18.$ If you have a high debt$-$to$-$income ratio, what financial milestones or goals might you not be able to reach?

$19.$ Why is it important to make good career choices and keep your consumer debt in$-$line with those choices?

$20.$ In reality, gross income is not necessarily the best measure of income because it is income before taxes. In the Calder$$s

situation, their net income $($after$-$tax$)$ is about $$13,143\mathrm{.}40/$month instead of $$21,291\mathrm{.}70/$month$.$ After their mortgage and student

loan payments are made, there$$s about $$8,243$ left over. What do you think about this and how would you suggest they manage

money that$$s left after paying their debts?