This is a topic that I dreaded trying to teach.  When you look at the changing regulatory environment, the alphabet soup involved (IBR, ICR, PYE, etc.), the myriad repayment options (6 at last count) and the math calculations, it can seem a tad overwhelming.

And then along comes this tool (The Student Loan Repayment Calculator), which manages to make this issue of student loan repayment much more approachable (Full disclosure:  I do have some qualms with their assumption of 5% annual income growth).  So, why teach this to high school students?…one way to discourage them from overdoing student debt is for them to understand: 1) Student loans actually need to be repaid (recent study found 28% of freshmen didn’t know they had a student loan)  2)  Taking on lots of debt will impact their post-college lifestyle, which is where this calculator comes in.

I created a simple example using average debt load and salary information to see what the calculator told me:

• Average student debt load for college graduates:  $28,400 (TICAS, 2013)
• Average starting salary for college graduates:  $48,707 (NACE, 2014)
• Interest rate on federal loans:  4.66% (Direct Undergraduate loans, 2014-15 school year)
• Single
• California resident

Click on “Calculate Results” and voila, here are the results:

This could lead to a good discussion, once students have a few minutes to review the results:

• What are the assumptions used by the Dept. of Education in these calculations?
• What are the various repayment options (in the students’ own words)?  Hint:  Click on the “i” next to each repayment option.
• Why does the Graduated Repayment option have monthly payments with such a wide variance?
• If you are fixated on paying the least amount of interest, which option would you choose?
• Can you prepay your student loan (i.e., pay off your loan sooner than the repayment term listed)?
• Why do you think this average student is not eligible for the “Income Based Repayment” option?

Suddenly, this topic seems more manageable:)

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

More posts by Tim