Loan Logic Slides Loan Logic
Calculating Your Future Monthly Obligations
Lesson 1: Calculating Repayment
The Sticker Shock Challenge
New Car Loan
$30,000
Repaid over 5 years (60 months)
Guess the Monthly Payment
Student Loan
$30,000
Repaid over 10 years (120 months)
Guess the Monthly Payment
"Which one costs more per month? Why?"
The Reality Check
Car Payment (60 months)
$566 / month
At 5% interest
Student Loan (120 months)
$318 / month
At 5% interest
The student loan has a lower monthly payment because the repayment term is twice as long...
But here is the catch:
You pay interest for ten full years instead of five.
Standard Repayment Plan
What is it?
The basic repayment plan for federal student loans. You pay a fixed monthly amount every month for 10 years.
The Good
• Shortest path to payoff
• Least interest paid overall
• Consistent budgeting
The Challenge
• Highest monthly payments
• Hard for low salaries
The 1% Shortcut
Want a quick estimate? At current interest rates, your monthly payment on the Standard Plan is roughly:
$10 to $12
Per $1,000 borrowed
Example: $20,000 loan ≈ $200 - $240 / month
The Debt-to-Income (DTI) Ratio
How much of your monthly paycheck is swallowed by your loan?
Monthly Loan Payment
$400
÷
Monthly Gross Income
$4,000
=
10%
Financial experts recommend keeping student loan DTI below 10-15% of your gross income.
10% or Less: Safe Zone
15-20%: Caution Zone
25%+: Danger Zone
Loan Logic Worksheet Loan Logic Workshop
Lesson 1: Calculating Monthly Obligations
Name
Date
Part 1: The Sticker Shock Rule
On the Standard 10-Year Repayment Plan , a quick way to estimate your monthly payment is to multiply your total debt by $11 for every $1,000 borrowed.
Scenario A
$10,000 Borrowed
10 × $11 = $110 / mo
Scenario B
$27,000 Borrowed
27 × $11 =
Scenario C
$55,000 Borrowed
55 × $11 =
Part 2: The Salary vs. Loan Challenge
Calculate the Debt-to-Income (DTI) Ratio for the following graduates. Round to the nearest whole percentage. Remember: (Monthly Loan Payment ÷ Gross Monthly Income) × 100 = DTI%
Graduate Profile Monthly Gross Income Monthly Loan Payment DTI % Calculation Alex (Graphic Designer) $3,500 $350 Maya (Teacher) $3,800 $600
|
| Jordan (Nurse) | $5,200 | $450 |
|
| Sam (Retail Management) | $3,000 | $850 |
|
Analysis Questions
Refer back to the DTI Zones: 10% Safe, 15-20% Caution, 25%+ Danger.
1. Which graduate above is in the most financial danger? Why?
2. Maya has a higher income than Alex, but a higher DTI. What does this tell you about borrowing amounts vs. career choice?
Pro-Tip: The Living Math
"Gross Income" is your pay before taxes. After taxes, health insurance, and retirement, you might only take home 70% of that money. If your student loan takes 25% of your gross, it might actually be taking over 35% of the money you actually have to spend!
Part 3: Personal Projection
Imagine you borrow $40,000 for your total college education. Using the $11 per $1,000 rule, calculate your monthly payment and determine the salary you would need to stay in the Safe Zone (10%) .
Monthly Loan Payment
$ ______________
Target Monthly Gross Salary (to be 10%)
$ ______________
Target Annual Salary (Monthly x 12)
$ ______________
Reflection: Does this annual salary sound like a starting pay for a career you are interested in? If not, what would you need to change (borrow less or choose a higher-paying career)?
Loan Logic Teacher Guide Teacher Guide: Loan Logic
Lesson 1: Calculating Monthly Obligations
Unit: Evaluating Repayment Strategies and ROI
Instructional Purpose
Students often view $30,000 as an abstract number. This lesson grounds that number in reality by demonstrating how debt translates into monthly obligations that compete with rent, groceries, and entertainment. By the end of this lesson, students should be able to estimate a monthly payment and evaluate its impact using the Debt-to-Income (DTI) ratio.
Key Discussion Prompts
HOOK
"Why does the car loan have a much higher payment even though the total debt is the same?" (Focus: Term length and how it impacts monthly flow vs. total interest).
ANALYSIS
"If Maya has a higher income than Alex, why is she in more financial trouble?" (Focus: Borrowing beyond the 'safe' percentage for a specific career's starting pay).
At a Glance
45-50 Minutes
Individual / Partner Work
Formative Assessment
Standards & Skills
• Calculate ratios and percentages
• Estimate loan repayments
• Analyze financial trade-offs
• Career-to-Debt alignment
Answer Key & Facilitation Notes
Part 1: The $11 Rule (Standard 10-Year Plan)
Scenario B ($27,000): 27 × 11 = $297 / month
Scenario C ($55,000): 55 × 11 = $605 / month
Part 2: DTI Ratio Calculations
Profile DTI Calculation Zone Status Alex (350 / 3500) = 10% SAFE Maya (600 / 3800) ≈ 16% CAUTION Jordan (450 / 5200) ≈ 9% SAFE Sam (850 / 3000) ≈ 28% DANGER
Part 3: Personal Projection ($40,000 Loan)
Monthly Payment: 40 × $11 = $440Target Monthly Gross: To stay at 10%, student needs $4,400 per month.Target Annual Salary: $4,400 × 12 = $52,800.Facilitation Note: Ask students if $52,800 is a realistic starting salary for a teacher? An artist? An engineer? Use this to transition into the next lessons.
Plan Picker Slides Plan Picker
Navigating Repayment Options & Trade-offs
Lesson 2: Exploring Repayment Plans
Can You Survive the Month?
Scenario
Your monthly take-home pay is $2,400.
Math: $2,400 - $2,000 - $500 = -$100
"You are officially short on cash. What do you do?"
Today, we look at the "escape valves": alternative repayment plans.
The "Big Four" Federal Plans
Standard
10 YEARS
Fixed payments. Pay it off fast. Least interest.
Lowest Total Cost
Graduated
10 YEARS
Starts low, increases every 2 years as your income (hopefully) grows.
Increases Over Time
Extended
UP TO 25 YEARS
Lower monthly payments by stretching the timeline out significantly.
High Interest Costs
Income-Driven (IDR)
20-25 YEARS
Payment is a fixed percentage of your income (often 10%). Can be $0!
Built-in Safety Net
The "Low Payment" Trap
Standard (10 yr)
Monthly Payment:
$350
Total Interest Paid:
$12,000
Extended (25 yr)
Monthly Payment:
$190
Total Interest Paid:
$27,000
Time is Money
Lowering the payment extends the time. Interest has more years to multiply.
Double Interest
In this example, the borrower pays $15,000 extra just to have a lower monthly bill.
Strategic Matching
In your groups, you will be given borrower scenarios. Your job is to pick the least expensive plan that still allows them to live their life.
Graduate A
High salary, low debt. Wants to be debt-free ASAP.
Graduate B
Starting a non-profit. Low pay, expects raises soon.
Graduate C
Massive debt, low pay. Living paycheck to paycheck.
Repayment Trade-offs Worksheet Repayment Trade-offs
Lesson 2: Exploring Repayment Plans
Name
Date
The Repayment Matrix
Plan Name Repayment Term Key Benefit / Strategy Standard 10 Years Fixed payments; lowest total interest cost. Graduated 10 Years Extended Up to 25 Years
|
| Income-Driven (IDR) | 20 - 25 Years |
|
Borrower Matching
Read each borrower profile below. Recommend the best federal repayment plan based on their specific financial situation and goals.
Scenario 1: Sofia (The High Earner)
Sofia is a Software Engineer earning $95,000/year. She has $25,000 in student debt. She wants to buy a house in 5 years and wants to be debt-free as quickly as possible to avoid interest.
Recommendation
Reason Why
Scenario 2: Marcus (The Non-Profit Hero)
Marcus works for a small non-profit. His salary is $35,000/year, but he has $60,000 in student loans. He can't afford the $600 Standard payment, but he expects a promotion in 3 years.
Recommendation
Reason Why
Scenario 3: Elena (The Struggling Freelancer)
Elena is an artist. Her income varies wildly month-to-month. Last month she made $1,200. She needs a plan that protects her during months when she has very little income.
Recommendation
Reason Why
The Interest Math
If you borrow $30,000 at 5% interest, here is the total cost on two different plans. Calculate the "Convenience Cost" (the extra interest you pay for the lower payment).
Standard (10 yr) Total Paid: $38,184
Extended (25 yr) Total Paid: $52,613
The "Convenience Cost": $ ____________
"Is it worth it?"
Think about that "Convenience Cost." That's money that could have been used for a down payment on a house, a retirement fund, or travel. In 3-4 sentences, explain when it might be necessary to pay that extra cost, and when it might be a mistake .
Plan Picker Teacher Guide Teacher Guide: Plan Picker
Lesson 2: Exploring Repayment Plans
Unit: Evaluating Repayment Strategies and ROI
Strategic Context
The goal of this lesson is to move students beyond simple math into financial strategy . They need to understand that federal loans are flexible, but that flexibility has a price tag (accrued interest). Focus the lesson on the "Survival" aspect—how these plans provide a safety net during tough economic times.
Key Facilitation Points
1. THE HOOK
Ensure students calculate the -$100 deficit. Ask: "Would you rather skip meals, or choose a repayment plan that gives you breathing room today?"
2. THE TRAP
When discussing the Extended Plan, emphasize that it's often marketed as "affordable," but it is the most expensive plan in the long run. Use the $14,429 interest difference to drive this home.
Pedagogy Corner
Differentiated Approach
For advanced students, introduce Public Service Loan Forgiveness (PSLF) —how IDR plans combined with non-profit work can lead to loan balance forgiveness after 10 years.
Vocabulary
• Principal: Original debt
• Accrued Interest: Interest built up
• Term Length: Payoff timeline
Answer Key
Matrix Key Concepts:
• Graduated: Starts low, increases every 2 years; good for those expecting salary growth.
• Extended: Lowers monthly payments by increasing the term; most expensive in interest.
• IDR: Based on income, not debt amount; payment can be $0; provides ultimate safety.
Sofia
Plan: Standard
Reason: She earns enough to pay it comfortably and wants to minimize interest to save for a home.
Marcus
Plan: Graduated
Reason: He needs a lower payment now but expects to afford the standard amount once he is promoted.
Elena
Plan: Income-Driven
Reason: Her income is unstable; IDR adjusts her payment automatically based on what she actually earns.
The Interest Math Answer:
$52,613 - $38,184 = $14,429
Borrower pays nearly 50% more in interest just to lower the monthly bill on the Extended plan.
Career ROI Slides Career ROI
The Mathematics of Career Choice & Borrowing Limits
Lesson 3: Return on Investment
The ROI Showdown: Who is "Richer"?
Scientist Sam
Starting Salary: $75,000
Student Debt: $45,000
Debt-to-Salary Ratio
0.6 to 1
Artist Aria
Starting Salary: $35,000
Student Debt: $50,000
Debt-to-Salary Ratio
1.4 to 1
"Salary is only half the story. The other half is what you owe to get it."
The "Golden Rule" of Student Debt
Your total student loan debt should not exceed your expected first-year salary.
Example
Salary: $40k → Debt: ≤$40k
If you follow this rule, you will likely stay in the "Safe Zone" for repayment.
Why it works:
Keeps your monthly payments at roughly 10% of your gross income.
Why people break it:
Choosing high-cost private universities for low-paying careers.
Factors of ROI
Starting Salary
The baseline for what you can afford each month.
Job Stability
Is the field growing? Will you have a job to pay the loans?
Salary Growth
Does the salary stay flat, or does it double in 10 years?
"ROI = (Financial Gains - Cost of Education) ÷ Cost of Education"
Your Turn: ROI Research
You are going to pick two possible careers and find the "Safe Borrowing Limit" for each.
Step 1
Research Salary
Step 2
Calculate Limit
Step 3
Evaluate ROI
ROI Research Lab ROI Research Lab
Lesson 3: Connecting Careers to Debt Limits
Name
Date
The Golden Rule of ROI
To ensure you can pay back your student loans without financial hardship, your total borrowing should not exceed your expected first-year gross salary .
Part 1: Career Discovery
Choose two careers you are interested in. Use a site like BLS.gov or O*NET to find the median starting salary (often listed as "Entry Level" or "Bottom 10%").
Career A
Career Title
Expected Starting Salary (Annual)
$
Monthly Gross Pay (Salary ÷ 12)
$
Safe Borrowing Limit (Golden Rule):
$ ___________________
Career B
Career Title
Expected Starting Salary (Annual)
$
Monthly Gross Pay (Salary ÷ 12)
$
Safe Borrowing Limit (Golden Rule):
$ ___________________
Part 2: ROI Reality Check
Scenario: The Expensive Degree
You want to be a Social Worker. The starting salary is $38,000. You get accepted into a private university that will require you to borrow $80,000 to attend for four years.
Does this pass the "Golden Rule"? YES / NO
How would this decision impact your life for the next 10 years?
Think about "Career B" from Part 1. If the borrowing limit is too low to pay for the college you want, what are three strategies you could use to make the ROI positive?
The Non-Financial ROI
Financial ROI is important, but it's not the only factor. If a career has a low financial ROI but a high personal ROI (it's your dream job, it helps people, etc.), how can you still pursue it responsibly?
Career ROI Teacher Guide Teacher Guide: Career ROI
Lesson 3: Return on Investment (ROI)
Unit: Evaluating Repayment Strategies and ROI
Instructional Purpose
Students often choose colleges based on prestige or campus "vibe" without considering the bill. This lesson introduces the Golden Rule of Borrowing : a heuristic that ensures their future income can support their debt. The goal isn't to discourage passion careers, but to encourage responsible financing of those careers.
Lesson Hook & Discussion
The Debate
"If someone wants to be a Social Worker (Starting Salary $40k), is it a bad idea for them to go to a school that costs $100k?"Encourage students to debate the 'intangible' value of college vs. the 'tangible' math.
Strategy
"What if you love the $100k school? How can you make it work?" (Scholarships, working during school, community college transfer, etc.)
Research Resources
BLS.gov (OOH): Occupational Outlook Handbook. Best for entry salaries.CollegeScorecard: Federal data on median debt and salary by major.Niche.com: Good for finding total cost of attendance (COA).
Golden Rule Math
Salary ≈ Total Debt. This yields a DTI of ~10% on a Standard Plan.
ROI Reality Check: Answer Key Notes
Part 2 Scenario: The Expensive Degree
• Passes Golden Rule? No. Borrowing $80k for a $38k job is 2x the recommended limit.
• Impact: Monthly payment would be ≈ $880 (using the $11 rule). Gross monthly pay is $3,166. DTI is 28%.
• Consequence: The borrower will struggle to afford an apartment, car, or emergency savings. They will likely be forced into an IDR or Extended plan, paying much more interest over time.
Strategies to Improve ROI:
Community College for first 2 years (Transfer).
Apply for merit-based or needs-based scholarships.
Work-study or part-time employment during school.
Choosing a public in-state university over a private one.
Teacher Note: Emphasize that "Debt is a tool." It's okay to use it, but like any tool, if you use it improperly (borrowing more than you can produce in value), it can cause significant damage to your financial health.
Credit Crash Slides Credit Crash
The Harsh Reality of Student Loan Default
Lesson 4: Consequences of Default
Scenario: Life Interrupted
Jordan found the perfect apartment. He has a good job and the deposit ready. But the landlord just called: "Sorry Jordan, your credit check failed. We can't rent to you."
Jordan hasn't paid his student loans in 10 months. He thought "it's just a loan," but now he's homeless.
The Path to Default
1 Day
Delinquent
The very first day you miss a payment. Late fees might be added by your servicer.
90 Days
Credit Reporting
Your servicer reports the missed payments to credit bureaus. Your credit score begins to tank.
270 Days
Default
The entire loan balance is now "due immediately." You lose access to all federal benefits.
The Repercussions
Wage Garnishment
The government can take up to 15% of your paycheck automatically—no court order required.
Tax Refund Offset
The IRS can seize your entire tax refund to pay off your defaulted student debt.
Credit Score Ruin
Makes it nearly impossible to get a car loan, credit card, or mortgage for years.
Benefit Loss
You lose eligibility for IDR plans, deferment, and future federal financial aid.
Prevention is Power
If you can't pay, do not just stop. You have two main "pause" buttons:
Deferment
A temporary pause for school, military service, or unemployment. Interest might not build up.
Forbearance
A pause for financial hardship or illness. Interest always builds up.
RULE #1: Call your loan servicer before you miss a payment!
Risk Radar Worksheet Risk Radar
Lesson 4: Consequences of Default & Prevention
Name
Date
Part 1: The Cost of Silence
Failing to repay your student loans (Default) has serious "teeth." Check off the repercussions that would impact your life the most if you were in default, then answer the question below.
Wage Garnishment
The government takes up to 15% of your paycheck before it hits your bank account.
Tax Refund Seizure
Any IRS tax refund you are owed will be taken and applied to your loan debt.
Credit Score Damage
Your credit score drops significantly, making it impossible to buy a car or house.
Legal Collection Fees
Collection agencies add massive fees (up to 25% of your total balance) to your debt.
Reflect: Why is "Wage Garnishment" often considered the most stressful consequence for a young adult?
Part 2: The Safety Switches
If you can't pay, you must call your servicer to request one of these. Fill in the blanks using the information provided in the lesson.
Deferment
A temporary postponement of payment.
Typical Reasons
School, military service...
Interest Benefit?
For subsidized loans, interest ______________________ buildup.
Forbearance
A temporary pause due to financial hardship.
Part 3: The Investigation
"Jordan failed his credit check for the apartment. He hasn't paid his loans in 10 months."
1. Jordan is past day 270. Is he currently delinquent or in default?
_________________________________
2. What specific step should Jordan have taken back at Day 30 to prevent this?
Write the preventative action here:
Risk Radar Worksheet Don't Just Stop. Call Your Servicer.
Credit Crash Teacher Guide Teacher Guide: Credit Crash
Lesson 4: Consequences of Default
Unit: Evaluating Repayment Strategies and ROI
Risk Assessment
Default is often the result of fear and paralysis . Students need to understand that the government has powers with student loans that private banks (for credit cards/cars) do not have. The takeaway should be: Communication is the only defense.
The "Life Interrupted" Simulation
Start the class with the Jordan scenario. Ask: "If you were the landlord, would you take a risk on someone who hasn't paid a bill in 10 months? Even if they were a 'nice person'?"
"Jordan represents the invisible nature of credit. You can't see a credit score on someone's face, but it determines where you live, what you drive, and sometimes even where you work."
The "Teeth" Summary
Wage Garnishment: 15% limit. It's embarrassing and financially crippling.IRS Offsets: Seizing refunds is the government's easiest collection tool.Social Security: Even retirement checks can be garnished in old age for student loans.
Preventative Action
Call the Student Loan Servicer . They are paid to help you find a plan to stay out of default.
Answer Key & Guidance
Part 2: Safety Switches Key
Deferment:
Reasons: At least half-time enrollment, Military service, Peace Corps, Cancer treatment.
Interest: Subsidized loans do NOT accrue interest (the gov pays it).
Forbearance:
Reasons: Financial hardship, high medical expenses, change in employment.
Interest: Interest ALWAYS builds up and is added to the principal balance (Capitalization).
Part 3: Jordan's Investigation
1. Status: Default. (Anything past 270 days is default).2. Preventative Action: Jordan should have called his servicer and requested an IDR plan (which could have lowered his payment to $0 safely) or a Forbearance .3. Landlord logic: Landlords view student loan default as a sign that a tenant cannot prioritize essential monthly obligations. Counselor Capstone Slides Capstone Project
Financial Advisory Simulation
Lesson 5: Advising a Borrower
FROM: Alex Rivera (arivera98@email.com ) Today, 8:42 AM
SUBJECT: URGENT: I can't make rent this month! Help!
"Dear Counselor, I'm panicking. My student loan payment just hit and I don't have enough left for rent. I haven't paid my loan in 3 months and I'm scared of what happens next. I don't want to default, but I don't know my options. Please tell me what to do."
New Assignment
Client: Alex Rivera | Portfolio #9442
Your Mission
1
Audit
Analyze the client's current income, debt load, and monthly expenses.
2
Diagnose
Identify why the current plan is failing (DTI analysis).
3
Prescribe
Recommend a specific repayment plan and budget adjustments.
The "Financial Action Plan"
Your final output must be a formal Financial Action Plan that includes:
Calculated DTI Analysis
Choice of Repayment Plan (With Rationale)
Immediate Prevention Steps (Stay out of Default)
Proposed Budget Adjustments
Grading Rubric
Accuracy of Math25%
Strategic Rationale25%
Risk Prevention25%
Professional Writing25%
Open Your Client Folders
Alex Rivera's financial future is in your hands. Use the skills from Lessons 1-4 to build their path to stability.
Simulation Start
Client Profile Portfolio Client Portfolio #9442
Confidential Financial Advisory Document
STATUS: URGENT / DELINQUENT
Alex Rivera
Age: 23 | Recent Graduate
Degree
B.A. in Psychology
Current Job
Research Assistant (Entry Level)
Client Situation Summary
"I graduated 6 months ago. I love my job, but the pay isn't as high as I expected. I just moved into an apartment with two roommates. I missed my last 3 student loan payments because my car needed repairs and I prioritized rent. Now I'm getting letters saying I'm nearing default. I feel like I'm drowning."
Primary Goal
"I need to stay out of default and find a way to make my monthly payments without missing rent or skipping meals. I need a plan that gives me breathing room immediately."
Monthly Income & Cash
<table class="w-full text-sm"><tbody><tr class="border-b border-slate-100"><td class="py-3 text-slate-600 font-medium">Gross Salary (Monthly)</td><td class="py-3 text-right font-black text-slate-900">$3,500</td></tr><tr class="border-b border-slate-100"><td class="py-3 text-slate-600 font-medium">Net Take-Home (After Tax)</td><td class="py-3 text-right font-black text-slate-900">$2,650</td></tr><tr class="border-b border-slate-100"><td class="py-3 text-slate-600 font-medium">Emergency Savings</td><td class="py-3 text-right font-black text-emerald-600">$150</td></tr></tbody></table>
Debt & Obligations
<table class="w-full text-sm"><tbody><tr class="border-b border-slate-100"><td class="py-3 text-slate-600 font-medium">Total Student Debt</td><td class="py-3 text-right font-black text-slate-900">$45,000</td></tr><tr class="border-b border-slate-100 bg-red-50"><td class="py-3 px-2 text-red-900 font-bold italic">Standard Monthly Payment</td><td class="py-3 px-2 text-right font-black text-red-900">$495</td></tr><tr class="border-b border-slate-100"><td class="py-3 text-slate-600 font-medium">Loan Interest Rate</td><td class="py-3 text-right font-black text-slate-900">5.5%</td></tr></tbody></table>
Current Monthly Expense Audit
Rent & Utilities (Shared) $1,100
Groceries & Personal Care $500
Car Payment & Insurance $450
Gas & Commuting $200
Subscription Services & Fun $350
Total Fixed Monthly Outflow $2,600
The Critical Math:
Net Income ($2,650) - Total Fixed Expenses ($2,600) = $50 remaining.
Alex's current student loan payment is $495 . He is short $445 every month.
Financial Action Plan Template Financial Action Plan
Advisor Professionalism Required
Advisor Name
Client ID
#9442 (Rivera)
1. Current Financial Audit
Calculated DTI Ratio
(Monthly Loan ÷ Monthly Gross Salary)
$495 ÷ $3,500 = __________%
Current Standing Analysis
Identify the "DTI Zone" the client is in and describe the immediate risk of their 3-month delinquency.
2. Recommended Repayment Strategy
Proposed Repayment Plan
Estimated New Monthly Payment
$
Rationale for this Plan
Explain how this plan solves the client's current monthly deficit while considering the long-term interest trade-offs.
3. Budgetary Adjustments
The client's current net take-home is $2,650. Identify three specific areas where the client can reduce spending to build an emergency fund and safely afford their new payment.
Adjustment 1
Identify expense...
Adjustment 2
Identify expense...
Adjustment 3
Identify expense...
4. Immediate Default Prevention
"What should Alex do in the next 24 hours?"
Step 1: __________________________________________________________________________
Step 2: __________________________________________________________________________
Capstone Teacher Guide Teacher Guide: Capstone Project
Lesson 5: Advising a Borrower
Unit: Evaluating Repayment Strategies and ROI
Project Mastery
This capstone project requires students to synthesize Lessons 1-4 . They must calculate DTI (Lesson 1), select a strategic plan (Lesson 2), evaluate ROI/Career alignment (Lesson 3), and prevent default (Lesson 4). The simulation creates urgency and professional responsibility, shifting students from "learners" to "advisors."
Facilitation Notes
STEP 1
Ensure students identify the -$445 monthly deficit. Without identifying the deficit, they cannot recommend a valid budget adjustment.
STEP 2
Common Choice: Most students will recommend an IDR plan or Extended Plan . Validate both, but push them to explain the interest trade-off for the client.
STEP 3
In Part 4 (Immediate Action), look for "Call the servicer" and "Request Forbearance" as the top two professional recommendations.
Grading Rubric
Accuracy (25pts)
DTI calculation is correct (14%). Deficit math is correct.
Rationale (25pts)
Plan choice is logically explained based on Alex's low income.
Action Steps (25pts)
Identifies servicer contact as the primary defense.
Budgeting (25pts)
Identifies non-essential spending (Fun/Subscrip/Dining).
Advisor's Key (Expected Solution)
Part 1: Audit
DTI: (495 / 3500) ≈ 14.1%. This is in the CAUTION ZONE. While 14% seems safe, the client's high cost-of-living (Rent/Car) makes this debt load unsustainable on their current salary.
Part 2: Repayment Plan Choice
"We recommend the Income-Driven Repayment (IDR) plan. Based on Alex's salary, the payment would likely drop to ≈ $150-$200 per month, which Alex can afford without missing rent."
Part 3: Budget Adjustments
1. Reduce "Fun/Subscriptions" from $350 to $100.
2. Meal prep to reduce $500 grocery/dining bill.
3. Request a Forbearance while the IDR application processes.
The Ultimate Defense: Call the Loan Servicer.
Alex is at 90 days (missed 3 payments). They must act now to avoid Credit Reporting and eventual Default.
