Standard #: MA.912.FL.3.7

Benchmark Instructional Guide

Connecting Benchmarks/Horizontal Alignment

• MA.912.AR.10.2 
• MA.912.FL.1.1 
• MA.912.FL.2.6

 

Terms from the K-12 Glossary

 

Vertical Alignment

Previous Benchmarks

Next Benchmarks

 

Purpose and Instructional Strategies

In Math for Data and Financial Literacy, students are introduced to different types of student loans and analyze the advantages and disadvantages of each type. They learn about various repayment plans of these loans and their impact they can have on tax returns. 

• Instruction includes allowing students to research the current information in regards to student loans as changes can be made on a yearly basis. 
• Students should understand the difference between direct and indirect student loans, and the different types of each. 
  • Direct loans are issued and managed by the U.S. Department of Education and are backed by the federal government. Federal direct loans are fixed-rate and can be used to pay for the costs of education, including tuition, room and board, books, and other education-related expenses. Indirect loans are obtained from a third-party lender. 
    • Direct Subsidized (Stafford) Loans 
      Direct subsidized loans are only available to undergraduates that demonstrate a financial need. They typically have lower interest rates than other student loans. They are called subsidized loans because the government pays the loan interest while a student is in school at least halftime and continues to pay it for six-months after the student leaves school. The government will also pay the loan interest during a period of deferment. 

• Direct Unsubsidized (Stafford) Loans 
  Direct Unsubsidized Loans are available to both undergraduate and graduate students. The financial need of the student is not a factor in obtaining the loan. They feature higher interest rates than direct subsidized loans and the government does not pay any interest on the loan. Repayment for these loans does not begin until 6 months after graduation, leaving school or dropping below halftime enrollment. Interest for these loans begins to accrue immediately upon receipt. When payments for the loan begin, any interest that accrues is capitalized, meaning it is added to the principal of the loan. Future interest will be calculated from this new principal for the remainder of the loan. 

• Direct PLUS Loans 
  PLUS stands for Parent Loan for Undergraduate Students. Direct PLUS Loans are used by parents of a prospective student to pay for college expenses. The terms of the loan depend on the parent’s credit standing. 

• Indirect Unsubsidized Loans 
  Indirect Unsubsidized Loans are granted by financial institutions other than the federal government. These loans have less restrictions than direct loans, but typically come with higher interest rates. 

• Students should understand that with any direct loan, there are options for repayment. 
  • Standard Repayment Plan 
    Most students are automatically enrolled in this plan by default. The repayment term is typically 10 years, with equal payments each month. 

• Graduated Repayment Plan 
  This plan begins with lower payments that gradually increase across a 10-year term. Ultimately, students pay more than they would with the Standard option because of how payments are structured. 

• Income-Based Repayment Plan 
  Sets payments based off a percentage of students’ monthly discretionary income. Payment terms can stretch up to 25 years. This repayment plan can lower monthly payments, but the longer terms mean more interest will be paid overall compare with a standard repayment plan. This plan is not available for PLUS loans. 

• Extended Repayment Plan 
  This plan is available to borrowers with more than $30,000 in direct loans. It allows students to pay off loans over 25 years by making fixed or graduated payments. 

• Instruction includes student understanding of various terms related to student loans, including deferment period and forbearance. 
  • Deferment Period 
    A deferment period is a period during which a borrower does not have to make payments on a loan. Lenders may grant deferment during times of financial hardship as an alternative to default. Interest may continue to accrue during a deferment period, which means the interest is added to the amount due at the end of the deferment period. 

• Forbearance 
  Forbearance is the temporary postponement/reduction of loan payments. The terms of a forbearance agreement are negotiated between the borrower and the lender. The borrower must demonstrate their need for postponing payments, such as financial difficulties brought on by a major illness or the loss of a job as well as their trustworthiness to be able to resume payments once the financial difficulty is over. Lenders are often willing to negotiate forbearance agreements to try and prevent the losses they incur when a borrower defaults on a loan. Once the forbearance period is over, borrowers begin the process of repaying the missed/deferred payments. 

• Instruction allows students to discuss the difference between deferment periods and grace periods (MTR.4.1). A grace period is a length of time after a due date that a borrower can make a payment without incurring a penalty. Grace periods are typically set in days whereas deferment periods are usually expressed in months 
• Students should discuss the various tax implications that can be associated with different student loans options (MA.912.FL.2.6). Most direct student loan interest is tax-deductible since you’re repaying the government, they don’t tax you on the interest you repay them.

 

Common Misconceptions or Errors

• Students may think that interest does not accrue for unsubsidized loans during the grace period. 
• Students may forget to capitalize grace period interest when calculating monthly payments for unsubsidized loans.

 

Instructional Tasks

Instructional Task 1 (MTR.7.1) 

• Mitchell is planning to attend a 4-year university to earn a bachelor’s degree and then enroll in a second university for two additional years to earn his master’s degree. For both degrees, he takes out direct unsubsidized loans. The first loan is for $57,000 at 3.82% over 10 years, and the second loan is for $31,000 at 5.28% over 10 years. Both loans have a grace period until 6 months after graduation. 
  • Part A. If Mitchell decides to pay interest-only payments on his loan during his grace periods, how much will he pay each month for each loan? 
  • Part B. If Mitchell does not make any interest payments during his grace periods, what will be the new principals of each loan when the grace period expires? 
  • Part C. How much money would Mitchell save on each loan if he makes interest payments while attending school? 

Instructional Task 2 (MTR.4.1, MTR.7.1) 

• Naomi has finished a 4-year degree using a direct subsidized student loan of $27,000 at 3.9%. Nearing the end of her grace period, Naomi considers two repayment plans. The standard repayment plan features payments of $272 per month over 10 years. A graduated payment plan over 10 years starts with payments of $152 per month and increases the payment 31.5% every two years. 
  • Part A. Calculate the total amount repaid under each plan. Which plan repays the least amount? 
  • Part B. Under which conditions would the graduated payment plan be the better option? Share your opinion with a partner.

 

• Nina has just graduated from high school and is making plans to attend a 4-year university in the fall. She has been approved for a $27,000 direct subsidized student loan for 10 years at 3.73% interest. 
  • Part A. How much will the U.S. Department of Education subsidize in interest costs during her 4.5-year nonpayment period? 
  • Part B. What is the total amount Nina will pay over the course of the 10-year loan? 

Instructional Item 2 

• Juan has finished a 4-year degree using a direct unsubsidized student loan of $32,000 at 3.77%. Nearing the end of his grace period, Juan applies for and receives a 36-month deferment with the option to pay monthly interest payments or have the interest capitalized at the end of the deferment period. How much money would Juan save over the course of the entire loan by paying interest payments during his deferment period?

*The strategies, tasks and items included in the B1G-M are examples and should not be considered comprehensive.