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fYou work in your college's financial aid office, and Mary Lou Hennings, a junior, has come to you for advice. She just found out that

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\fYou work in your college's financial aid office, and Mary Lou Hennings, a junior, has come to you for advice. She just found out that her father has been "downsized" from his job. To ensure that she has sufficient funding for her senior year, she needs to apply for a loan to help with expenses. She has a part-time job with take-home pay of $400 per month. She expects her annual net earnings to be approximately $29,000 after graduation, and she plans to continue living at home for another year or two. Her parents have told her she can use up to $10,000 of their home equity line of credit; however, she is not sure she wants to do that. She does not have any debt, except for 2 more years of monthly auto payments of $189. She is worried about trying to pay for an additional loan while still in school, although her dad is convinced he will find another job soon and be able to make up the payments. a. Explain the difference between a Direct Subsidized Loan and a Direct Unsubsidized Loan to Mary Lou. b. What types of student loans are available to Mary Lou, and what lending limits apply? c. Assume her student loan will have an interest rate of 6 percent and her parents' home equity line has a rate of 9.75 percent. If both loans have a 10-year maturity, what will her monthly payment be on $4,000, ignoring any possible deferments? d. Explain the tax consequences of the two options, assuming Mary Lou is in the 25 percent marginal federal tax bracket and her parents are in the 28 percent tax bracket. No state income tax is assessed. e. Using her current income, calculate her debt limit ratio for the most expensive school loan and her auto loan during the school year. Using her projected income, calculate her debt limit ratio for the loans after graduation. f. If Mary Lou suffers financially and has to file for bankruptcy, will her student loan debt be forgiven? g. Considering all available information, which loan would you suggest to Mary Lou? Why? Are there other options for financing her education? Click on the table icon to view the MILPF table .The V has an annual limit for undergraduate students of $5,500 per year, The ! has anual Iimts of: $3,500 for the rst year, $4.500 for the second year, and $5,500 for the third and fourth years. The 1 has a limit up to $2,000 for undergraduate students. The E limit is the cost of attendance minus any other nancial aid the student receives. c. Assume her student loan will have an interest rate of 6 percent and her parents' home equity line has a rate of 9.75 percent. If both loans have a 10-year maturity, what will her monthly payment be on $4,000. ignoring any possible deferments? Mary Lou's monthly payment on the student loan would be $ . (Round to the nearest cent.) Mary Lou's monthly payment on the home equity loan would be $ . (Round to the nearest cent.) d. Explain the tax consequences of the two options, assuming Mary Lou is in the 25 percent marginal federal tax bracket and her parents are in the 28 percent tax bracket. No state income tax is assessed, Explain the tax consequences of the two options. (Select the best choice below.) 0 A. Mary Lou's parents quality for a tax deduction on the home equity loan interest (within limits) or for a tax savings on the student loan interest paid up to a maximum of $2,500 annually, although the eligibility for the adjustment phases out as income increases. 0 B. Mary Lou qualies for a tax deduction on the home equity loan interest (within limits) or for a tax savings on the student loan interest paid up to a maximum of $2.500 annually, although the eligibility for the adjustment phases out as income increases, 0 0. Mary Lou's parents quality for a tax deduction on the home equity loan interest (within limits). Mary Lou qualies for a tax savings on the student loan interest paid up to a maximum of $2.500 annually. although the eligibility for the adjustment phases out as income increases. 0 D. Mary Lou qualies for a tax deduction on the home equity loan interest (within limits). Mary Lou's parents qualify for a tax savings on the student loan interest paid up to a maximum of $2.500 annually. although the eligibility for the adjustment phases out as income increases. The after-tax interest rate for the home equity loan is %. (Round to two decimal places.) The aer-tax interest rate for the student loan is %. (Round to two decimal places.) e. Using her current income, calculate her debt limit ratio for the most expensive school loan and her auto loan during the school year. Using her projected income, calculate her debt limit ratio for the loans after graduation. Mary Lou's debt limit ratio for the most expensive school loan and her auto loan during the school year is %. (Round to two decimal places.) Mary Lou's debt limit ratio for the most expensive school loan and her auto loan alter graduation is %. (Round to two decimal places.) f. if Mary Lou suffers nancially and has to le for bankruptcy, will her student loan debt be forgiven? Student loan debt is one of the few debts that cannot be forgiven in bankruptcy. This is why it is so important for Mary Lou to make her payments on time and not take on new debt that she cannot support with her current income. This is why it is so important for Mary Lou to make her payments on time and take on new debt in order to pay her student loan debt. |l_|| 9.0!\"? Student loan debt is the only debt that cannot be forgiven in bankruptcy. g. Considering all available information, which loan would you suggest to Mary Lou? Why? (Select the best choice below.) A. Assuming Mary Lou does not anticipate dramatic increases in her salary to more than $60,000 that would significantly limit the amount of the student loan interest adjustment, the student loan is the cheaper alternative. The student loan also will contribute to her FICO score and will offer deferral options. O B. Assuming Mary Lou does not anticipate dramatic increases in her salary to more than $60,000 that would significantly limit the amount of the student loan interest adjustment, the home equity loan is the cheaper alternative. The home equity loan also will contribute to her FICO score and will offer the option to defer the bill to her parents. O C. Assuming Mary Lou does not anticipate dramatic increases in her salary to more than $60,000 that would significantly limit the amount of taxes her parents will pay, the student loan is the cheaper alternative. The student loan also will contribute to her FICO score and will offer the option to defer the bill to her parents. O D. Assuming Mary Lou does not anticipate dramatic increases in her salary to more than $60,000 that would significantly limit the amount of the student loan interest adjustment, the home equity loan is the cheaper alternative. The home equity loan also will contribute to her FICO score and will offer deferral optionsAre there other options for financing her education? (Select the best choice below.) A. Another possible financing option is that her parents can apply for either the Federal Direct or Stafford Loan. With these loans, the available amount of financing depends on the total budgeted cost of education minus any other financial aid received, so the total amount available may be more than Mary Lou can receive through the Federal Direct or Stafford Loan programs, if she applied herself. B. Another possible financing option is that her parents can apply for either PLUS Direct or PLUS Loans. With these loans, the available amount of financing depends on the total budgeted cost of education plus any other financial aid received, so the total amount available may be less than Mary Lou can receive through the Federal Direct or Stafford Loan programs. O C. Another possible financing option is that Mary Lou can apply for either PLUS Direct or PLUS Loans. With these loans, the available amount of financing depends on the total budgeted cost of education minus any other financial aid received, so the total amount available may be more than Mary Lou's parents can receive through the Federal Direct or Stafford Loan programs. O D. Another possible financing option is that her parents can apply for either PLUS Direct or PLUS Loans. With these loans, the available amount of financing depends on the total budgeted cost of education minus any other financial aid received, so the total amount available may be more than Mary Lou can receive through the Federal Direct or Stafford Loan programs

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