Financial Algebra Unit 3

So let's say you complete college and have $31,000 in student debt. The current rate on direct student loans is 6.5%. The repayment period is 10 years.

$31,000 = 0.065/12($31,000)/1-(1+ 0.065/12)^-120 =352.00

What is the average amount of student debt for college graduates?

$37,090

What is the maximum Pell Grant award for the current year?

$7,395

Briefly describe the interest rates associated with the different types of federal student loans.

-Direct Subsidized Loans and Direct Unsubsidized Loans. Borrower Type: Undergraduate. Interest rate: 6.53% -Direct Unsubsidized Loans. Borrower type: Graduate or professional Interest rate: 8.08% -Direct PLUS Loans. Borrower type: Parents and Graduate or Professional Students. Interest rate: 9.08%

Fixed payment

-Has a fixed or graduated monthly payment -Ensures you'll pay off your loan (principal and interest) over a fixed period of time (10-30 years)

What is the purpose of the FAFSA, or Free Application for Federal Student Aid? (Select 2 answers) -It provides access to financial aid from the Federal government, such as grants, loans, and work-study -It is a scholarship application that is offered by the Federal government. If you win, you are awarded free tuition to the college you attend. -Colleges and universities use the information you submit on the FAFSA to determine how much financial aid to offer you -It provides access to loan programs from private lenders

-It provides access to financial aid from the Federal government, such as grants, loans, and work-study -Colleges and universities use the information you submit on the FAFSA to determine how much financial aid to offer you

Select TWO statements that correctly describe a Direct Subsidized Loan and a Direct Unsubsidized Loan.

-The government pays the interest on a Direct Subsidized Loan while the student is in school and during the grace period -The borrower is responsible for paying all of the interest on a Direct Unsubsidized Loan

income driven

-Your monthly payment is based on how much money you make and your family size -After making a certain number of payments, the rest of your loan balances will be forgiven

So let's say you complete college and have $45,000 in student debt. The current rate on direct student loans is 6.5%. The repayment period is 10 years.

45,000=.065/12(45,000)/1-(1+.065/12)^-120 =511

What percentage of students receive scholarships or grants for college?

63% of all undergraduates receive at least one grant or scholarship.

What is the chance that a FAFSA applicant will get some type of financial aid?

85%

DRN

A four-digit data number used to allow colleges to make changes on your behalf or to make corrections by phone

How much more per week does a college grad earn compared to someone with some college?

About $501 per week MORE (or over $26,000 per year)

Saving on a Valuable Education (SAVE) Plan.

Advantages: Payments should be affordable because they are based on your income instead of how much you owe. If you make your full monthly payment but it is not enough to cover the accrued monthly interest, the government covers the rest of the interest that accrued that month. This means that the SAVE Plan prevents your balance from growing due to unpaid interest. Payments are recalculated each year based on your updated income and family size. -Disadvantages: You must recertify your income and family size every year to stay eligible for income-driven payments, even if your income and family size haven't changed. Your payment could exceed what it would be under a 10-year Standard Repayment Plan if your income is high enough. Your spouse's income and loan debt are factored into your monthly payment calculation only if you file taxes jointly. You may pay more over the life of the loan than under the 10-year Standard Repayment Plan.

How might a college with a higher sticker price end up costing less than a college with a lower sticker price?

Because low-income students typically receive more grant aid at high-price colleges than elsewhere, these schools can end up costing less. The value of the education outweighs the cost.

What function do both deferment and forbearance each serve?

Both deferment and forbearance allow you to temporarily postpone or reduce your federal student loan payments. -A loan deferment allows you to temporarily stop making payments on your loan while interest doesn't accrue on some types of loans -Forbearance allows students to stop or reduce their monthly payments for up to 12 months. Interest continues to accrue during forbearance, and borrowers are not required to pay it.

For each type of organization listed in the video, brainstorm at least one example of an organization in your area that might provide scholarships or grants: Government Non-profit Private

Department of Education or local city council Rotary Club, Lions Club, or local community foundations Private companies or businesses in the area

How often do you need to file the FAFSA?

Each year you attend school to be eligible for student aid

Briefly explain how you go about applying for grants.

Fill out the FAFSA:Look for grants on your own You can also search online at sites like Scholarships.com to find scholarships and grants for college. Review your financial aid letter: Schools that you apply to will determine whether you qualify for federal, state, or school-based grants. Accept any grants you're offered: Each school that accepts you will list the grant aid you're being offered in your financial aid award letter.

Which of the following people do NOT need to file a FAFSA? Adam, a senior in high school applying to community college. Sarah, a senior in college applying to grad school. Gina, a senior in college taking a gap year before joining the military. Yunior, a part-time student enrolling as a full-time student next year.

Gina, a senior in college taking a gap year before joining the military.

At what point are you no longer eligible to receive Direct Subsidized loans?

Graduate and professional students are no longer eligible to receive Direct Subsidized Loans. Direct Subsidized Loans are available only to undergraduate students who have financial need.

Who qualifies for a Direct Plus Loan?

Graduate students Parents of a college student

Sarah realizes that she could have a fairly low monthly payment with an income-based repayment plan, but her total amount paid would be higher. How is it possible that her monthly payment is lower but her total payments are higher?

Her total payments are higher because it is based on her income and if she earns a higher income this year, she would have to pay more. It is also a prolonged payment ( pays for a much longer period).

How long will it take to receive your FAFSA Submission Summary once you submit your FAFSA?

If you provided an email address on your FAFSA, you will receive an email with instructions on how to access your FAFSA Submission Summary online 3-5 days after filing your FAFSA electronically. If you didn't provide an email address or filed your FAFSA by mail, it can take up to 3 weeks to receive your FAFSA Submission Summary

Summarize: what factors should you consider when choosing a repayment plan?

If you want to get out of debt quickly, choose a repayment plan with a shorter repayment period. If you are having trouble making payments or have other financial priorities, such as saving for future goals like buying a home or retirement, consider a plan that lowers your monthly payment.

How much does it cost to file the FAFSA each year?

It's free

Why is it important to review all pages of this document carefully? What should John do if he finds an error?

It's important because if there is an error you may be denied financial aid or given less financial aid. If John find an error he should update the information on your FAFSA form by selecting "Make a Correction."

Use the information from the slide to explain why you should accept scholarships and grants before other types of financial aid (like student loans).

It's more free money! A type of financial aid award that you do not have to pay back.

Complete the following statement: The LOWER your SAI, the _____________ (LESS/MORE) need-based financial aid you'll be eligible to receive.

MORE

Think back to the interest rates for federal student loans you learned about in the previous resource. How do the interest rates for private student loans shown in the article compare?

Many private student loans require payments while you are still in school. Variable interest rates, not subsidized, may require an established credit record, you may need a cosigner, interest may not be tax deductible, may not offer forbearance or deferment options, unlikely there will be a loan forgiveness program.

Imagine you're looking at attending a college whose tuition is $10,000 per year. Would you be able to pay your tuition only using federal student loans your first year?

No. it costs $9,500 in a given year. (No more than $3,500 of this amount may be in subsidized loans.)

When does the FAFSA officially open this year?

October first but this year it is December first

In what month does the FAFSA usually become available for the following year and when is the best time to submit it?

October first, best time to submit it is as soon as possible.

the loan payment formula

P = r(PV)/1-(1+r)^-n

What strategies can you use to reduce the total cost of a student loan?

Pay More than Your Minimum Payment Paying a little extra each month can reduce the interest you pay

We've learned that private student loans are the last type of financial aid you should utilize. What characteristics of private student loans best explain why that is?

Private student loans should be avoided due to their higher interest rates, lower consumer protections, and stricter qualification requirements compared to federal loans. They also lack beneficial repayment options and may not provide tax benefits.

When taking out student loans, what do you call the signed agreement to pay them back?

Promissory note.

Indirect expenses

are educational costs not paid directly to the college. They can include textbooks, transportation, dorm furnishings, and other personal expenses.

Direct costs

are those paid directly to the college and include tuition and fees, housing, and meal plan.

Explain how transferring core credits from a community college and/or testing out of certain courses can save you money when attending college.

can save you money by allowing you to complete foundational coursework at a significantly lower cost per credit, thus reducing the overall tuition you need to pay at a more expensive institution for your degree

What are the three types of money you should use when paying for college, and what type of money are scholarships and grants?

grants, scholarships, and loans. Free money that you don't have to pay back, as long as you meet certain requirements/have fulfilled the the obligations required. .

Describe one downside to borrowing the maximum allowed amount of federal student loans.

it can lead to a large monthly payment burden after graduation, potentially limiting your ability to achieve other important financial goals like buying a home (keeps you in debt)

Why do you think the graduation and retention rates for John's selected colleges are shown on page 10 of his FAFSA Submission Summary? How might that information impact John's college selection process?

primarily to assist John in making informed decisions about his college choices. These statistics provide valuable insight into the academic environment and success rates at each institution and may cause him to select one college over another due to its success.

What information does the FAFSA Submission Summary include?

summarizes all the information you provided when filling out the FAFSA. Eligibility overview: An estimate of your federal student loan and Pell Grant eligibility. School information: Includes the graduation rate, retention rate, transfer rate, default rate, median debt upon completion, and average annual cost of the schools you listed on your FAFSA.Next steps: Includes informational comments and instructions for any required action items such as: Verification: Your FAFSA Submission Summary may include a note stating you've been selected for verification. If you're selected, your school will contact you and ask for additional documentation to confirm the information you reported on your FAFSA is accurate. FAFSA changes: Information on how to resolve any issues or fix incorrect information on your FAFSA. Your FAFSA Submission Summary also contains your Data Release Number (DRN)

What is the main difference between deferment and forbearance?

with deferment, interest may not accrue on certain types of loans during the temporary pause in payments, while with forbearance, interest always continues to accumulate even when payments are paused or reduced; essentially, deferment is usually only available for specific qualifying situations, while forbearance can be granted for broader financial hardships.

Consolidating multiple student loans into one payment can help by lowering your monthly payment. But what are the downsides?

you may have to pay longer

It might seem tempting to choose an income-driven repayment plan since the remaining balance is forgiven after 20-25 years. What are some drawbacks you can think of if you were to choose an income-driven plan when you could be making higher payments?

you'll likely pay significantly more in total interest over time due to the extended repayment period, even if your balance is eventually forgiven; you could also face potential tax implications on the forgiven amount, and your monthly payments might increase if your income rises during the repayment term

What do you receive after you submit the FAFSA?

you'll receive a Submission Summary with your Student Aid Index (SAI), which is used by schools to assess your eligibility for aid.

Who uses the FAFSA once you have submitted it?

Schools use your FAFSA to evaluate your financial need and determine how much federal student aid you are eligible to receive.

Do you have more control over direct costs or indirect costs? Explain why.

The control over direct costs is greater because they are more tangible, measurable, and directly influenced by management decisions. Indirect costs are typically shared among multiple products or activities and are not easily influenced or controlled in isolation.

After receiving her FAFSA Submission Summary, your friend Ally makes the following statement: "My SAI is so high and I don't think my family can afford to pay that much out of pocket!" What can you tell her about the difference between her SAI and the amount she will likely pay for college?

The higher your SAI the less need-based financial aid you'll be eligible to receive. However regardless of this, still apply as you might get more financial aid then you think.

Explain why it's important to decide what college you'll attend based on the net price rather than the sticker price of a college.

The net price will show the actual cost, and the net price might be lower than a lower sticker price of another school. (Lower than sticker price)

Student Aid Index (SAI)

The number that a college uses to determine how much federal student aid the student would receive if the student attended the school

Why is it best to file the FAFSA as early as possible?

There are three FAFSA deadlines, one set by school, one set by state. More aid. Some schools do first come first serve basis.

Your friend tells you after doing all their research they've chosen the graduated repayment plan. What assumption are they making about their future income?

They are assuming in the future they will get a high paying job and be able to afford higher payments.

Why should you avoid giving your personal information over the phone if you didn't initiate the call?

To protect yourself from identity theft

Explain how grants are different from scholarships.

Unlike merit-based scholarships, grants are typically provided to students based on their financial need. That means you don't have to be a perfect student or write a long essay to apply for a need-based grant.

Verification

When your school contacts you to check that the data reported on your FAFSA is correct, including asking for supporting income and documentation

What is one downside of this plan?

You may pay more over the life of the loan than under the 10-year Standard Repayment Plan.

How does the salary you will earn after graduating college factor into how much you should take out in student loans?

You should only spend a small percentage of your salary after you graduate on debt. Therefore if I know I'm getting a high paying job in the future, I might take out a larger loan compared to if I get a lower paying job in the future.

What is the benefit of having a fixed interest rate loan?

Your interest rate stays the same, therefore, the amount of interest you pay stays the same

Income-Based Repayment (IBR) Plan

Your monthly payments are limited to 10% of your discretionary income, depending on when you received your first loans. You'll usually pay more over the life of the loan than under the 10-year Standard Repayment Plan.