# Student Loan Game Plan Methodology

Many experts say students should borrow no more than the equivalent of their expected first-year salary in order to afford future student loan payments while maintaining an expected after-college lifestyle. This is a simple guideline for students to remember and is emphasized in the Student Loan Game Plan^{®}. Supplementing federal student loans with private student loans, which tend to have higher interest rates and longer repayment terms, can make it difficult to stay in line with the first-year salary rule of thumb.

Student Loan Game Plan focuses on the lifestyle choices that students can make while in college and after leaving school to help them understand the relationship between borrowing decisions for college and their future lifestyle. Students can use the expected starting salary associated with the student's selected major along with various aspects of a future budget to see how choices can affect future lifestyle. Using Student Loan Game Plan, students may find ways to borrow even less than their expected first-year salary.

## Your Major

Users are asked to select a college major to provide a basis for determining estimated starting salary and, hence, the maximum borrowing level.

Students who do not know what college major they will pursue may start by selecting a job title instead to see the top three majors for people with that job title, according to the most recently available data from U.S. Census Bureau's annual American Community Survey Public Use Microdata Sample File 1-Year Estimates (ACS PUMS 1-Year). Because the job titles are obtained through an ongoing survey, all jobs available in the United States may not appear on the list. If the job of interest is not available, the user should select a closely related job.

The list of college majors is an unduplicated list of the majors reported in the most recently available ACS PUMS 1-Year data. This data is used to compute the estimated starting salary by major, as described below in the Your Scenario section. Because the list of college majors is obtained through an ongoing survey, it may not reflect all majors offered by U.S. colleges. If the major of interest is not available, the user should select a closely related major.

## Your Scenario

As described above, the maximum borrowing amount recommended by many experts is also the estimated first-year salary based on the major selected.

Salary information is based on the ACS PUMS 1-Year data released annually in September for the previous calendar year. The Student Loan Game Plan data is updated annually in June using the most recent files.

The survey data allows computations based on actual earnings reported by bachelor's degree recipients by major. Estimated starting salaries are based on 25th percentile salary information (inflation-adjusted dollars for the year of the PUMS data release) for U.S. civilians with a highest academic degree of a bachelor's degree in the major selected, age 18–64 (inclusive), who work full-time and full-year.

The total amount to repay is based on the assumption that interest accrues while the student is in school and during a six-month grace period after separation. Students are assumed to be in college for four years. Assumptions related to the loan terms and composition include the assumption that loans taken out in year 1 accrue interest for 51 months before repayment begins; loans taken out in year 2 accrue interest for 39 months before entering repayment; loans taken out in year 3 accrue interest for 27 months before repayment begins; and loans taken out in year 4 accrue interest for 15 months before entering repayment. Interest accrued while in school and during the grace period is capitalized (added to the principal balance) once, when repayment begins. No origination fees are included in these calculations.

The total amount to repay is the sum of the balance at the start of the repayment period (which includes interest accrued while in school and during the grace period) plus the interest charged over the repayment period. The scenario is based on federal loan rates and terms for undergraduate student loans, as published by Federal Student Aid at https://studentaid.gov/understand-aid/types/loans/interest-rates#rates. Half of the federal student loan amount borrowed is assumed to be subsidized and half is assumed to be unsubsidized. The federal loan maximums for dependent undergraduate students are used to determine the maximum federal loan amount for each year, as published by Federal Student Aid at https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized#how-much. Expected federal loan amounts are distributed to year 4 first, then year 3, and so on. If there is a remaining amount to borrow, it is split four ways and assigned to each year as a deferred private loan with a term of 15 years and a fixed interest rate equivalent to the unweighted average rate for such loans as found at https://www.iowastudentloan.org/docs/private-student-loans/partnership-loan-all-options-chart.pdf.

Many student loan lenders compute interest on a daily basis. For simplicity, a standard amortization schedule calculation is used in the Student Loan Game Plan. Actual amounts may vary slightly.

## Your After-College Budget

This section displays four important values.

- Expected amount borrowed
- If the remaining amount available to borrow in the Your Scenario section is a negative amount (that is, the user has already borrowed more than the maximum recommended amount), this value is set equal to the amount borrowed so far. In all other situations, this value is equal to the estimated starting salary, based on the ACS PUMS 1-Year data as described in the Your Scenario section.

- Expected monthly net salary
- The estimated annual salary is divided by 12 to obtain the monthly gross salary. Assumptions based on national averages are made about standardized deductions from that pay: 20% is subtracted to account for taxes and other withholdings; $100 is deducted for estimated individual, basic monthly insurance premium cost through the employer; and 3% is assumed to be directed toward a retirement account. Actual amounts will vary by individual.

- Expected monthly student loan payment
- This calculation uses the assumptions for loan terms and composition as described in the Your Scenario section above.

- Amount available for remaining expenses
- It is assumed that the students will make their student loan payment a priority after graduation. The amount available each month for remaining expenses is the expected net monthly salary minus the expected monthly student loan payment.

## Your Lifestyle Choices

Most lifestyle choices in the Student Loan Game Plan tool are associated with fixed dollar values based on national averages, while some are based on the user's choice. The values associated with each choice are explained below.

One selection in each in-college choice is marked as the expected choice (included in the expected borrowing amount) and does not add or subtract from the amount available for remaining expenses. Because the change in payment depends on the starting salary, for the sake of consistency, all changes in borrowed amounts are calculated assuming that the changes affect only the amount of private loans borrowed, using rate and term assumptions as described in the Your Scenario section above. Borrowing less adds to the remaining amount available for expenses because it reduces the monthly loan payment by the amount shown in parentheses below; borrowing more subtracts from the remaining amount available for expenses because it increases the monthly loan payment by the amount shown in parentheses below.

Lifestyle choices after school affect only the amount available for remaining expenses; no change in amount borrowed is assumed. Some after-college lifestyle choices are dependent on the student's geographical location. Adjustments in the cost of goods and services is based on the location within the United States using the cost of living index (COLI). The value of the COLI is preset to one — that is, it has no effect on costs. After the user selects a region of the country to live in, the COLI is set to a value based on that region using the current year's value of the COLI as computed by The Council for Community and Economic Research. The COLI value is then multiplied by values for living arrangements, transportation, food and clothing/accessories.

For the purpose of applying the COLI to various expenses, regions of the country are assigned as follows when a region is selected for location:

**Northeast** ME, VT, NH, MA, RI, CT, NJ, NY, PA, DE, MD, DC

**Southeast** KY, VA, WV, NC, SC, TN, AR, LA, MS, AL, GA, FL

**Midwest** OH, IN, MI, IL, WI, MN, IA, MO, ND, SD, NE, KS

**Southwest** OK, TX, NM, AZ

**Northwest** AK, HI, MT, WY, CO, UT, ID, WA, OR, CA, NV

The value for each region is computed as the average value of the individual state COLI values.

## In-College Choices

**Living Arrangements**- Dorm —
**Expected** - Fraternity/Sorority:
**Reduce**borrowing by $800 per year (**increase**amount available for remaining expenses by $36 per month) - Apartment — no roommates:
**Reduce**borrowing by $500 per year (**increase**amount available for remaining expenses by $22 per month) - Apartment — one roommate:
**Reduce**borrowing by $1,000 per year (**increase**amount available for remaining expenses by $44 per month) - Apartment — two roommates:
**Reduce**borrowing by $1,500 per year (**increase**amount available for remaining expenses by $67 per month) - At home:
**Reduce**borrowing by $4,000 per year (**increase**amount available for remaining expenses by $178 per month)

- Dorm —
**Meal Plan**- No meal plan:
**Reduce**borrowing by $2,200 per year (**increase**amount available for remaining expenses by $89 per month) - Minimum number of meals:
**Reduce**borrowing by $300 per year (**increase**amount available for remaining expenses by $13 per month) - Average number of meals:
**Expected** - Maximum number of meals:
**Increase**borrowing by $300 per year (**reduce**amount available for remaining expenses by $13 per month)

- No meal plan:
**Books**- $200 per year:
**Reduce**borrowing by $200 per year (**increase**amount available for remaining expenses by $9 per month) - $400 per year:
**Expected** - $600 per year:
**Increase**borrowing by $200 per year (**reduce**amount available for remaining expenses by $9 per month) - $800 per year:
**Increase**borrowing by $400 per year (**reduce**amount available for remaining expenses by $18 per month) - $1,000 per year:
**Increase**borrowing by $600 per year (**reduce**amount available for remaining expenses by $27 per month)

- $200 per year:
**Transportation**- Car:
**Increase**borrowing by $500 per year (reduce amount available for remaining expenses by $22 per month) - Ride sharing:
**Increase**borrowing by $400 per year (reduce amount available for remaining expenses by $17 per month) - Public transportation:
**Increase**borrowing by $300 per year (reduce amount available for remaining expenses by $13 per month) - Bicycle:
**Increase**borrowing by $50 per year (reduce amount available for remaining expenses by $2 per month) - Walk:
**Expected**

- Car:
**Work Hours**(assumes $10 per hour for 36 weeks per year for four years using the average number of hours in the range and subtracting 20% withholdings)- 0 hours:
**Increase**borrowing by $1,584 per year (**reduce**amount available for remaining expenses by $70 per month) - 1–10 hours:
**Expected** - 11–20 hours:
**Decrease**borrowing by $4,464 per year (**increase**amount available for remaining expenses by minimum of $198 per month or monthly student loan payment amount) - 21–30 hours:
**Decrease**borrowing by $7,344 per year (**increase**amount available for remaining expenses by minimum of $326 per month or monthly student loan payment amount) - 31 or more hours:
**Decrease**borrowing by $10,080 per year (**increase**amount available for remaining expenses by minimum of $448 per month or monthly student loan payment amount)

- 0 hours:
**Tuition and Fees**- Under $5,000 per year:
**Increase**amount available for remaining expenses by 50% of student loan payment - $5,000–$10,000 per year:
**Expected** - $10,001–$20,000 per year:
**Decrease**amount available for remaining expenses by 50% of student loan payment - $20,001–$30,000 per year:
**Decrease**amount available for remaining expenses by 100% of student loan payment - Over $30,000 per year:
**Decrease**amount available for remaining expenses by 200% of student loan payment

- Under $5,000 per year:
**Borrowing Level**- None:
**Increase**amount available for remaining expenses by 100% of student loan payment - Below recommended level:
**Increase**amount available for remaining expenses by 25% of student loan payment - At recommended level:
**Expected** - Above recommended level:
**Decrease**amount available for remaining expenses by 25% of student loan payment

- None:
**Interest Paid**- Unlike the previous categories, interest paid during school takes away a portion of the interest that accumulates while attending school, thereby reducing the amount that is added to the balance (capitalized) when repayment begins. The $0 choice is expected, meaning that interest is not paid while the student is in school. Because it maximizes the savings over time, it is always a good decision to apply in-school interest payments to the loans with the highest interest rate – the private loans. When an amount other than $0 is selected, it is assumed that the amount of interest paid will apply to the loans with the highest interest rate first. To compute the increase in amount available for remaining expenses for the other choices, the amount selected is multiplied by 51 months. This amount is then subtracted from any in-school interest starting in year one of the private loans. If all private loan interest is removed and there are additional payments remaining, those payments are applied to the interest paid on federal loans, starting in year 1. The amount of monthly savings varies based on the new monthly student loan payment amount computed.

## After-College Choices

**Income**- Below expected level:
**Decrease**amount available for remaining expenses by 25% of expected monthly gross income - At expected level:
**Expected** - Above expected level:
**Increase**amount available for remaining expenses by 25% of expected monthly gross income

- Below expected level:
**Entertainment**- $0 per month: no change
- $50 per month:
**Decrease**amount available for remaining expenses by $50 per month - $100 per month:
**Decrease**amount available for remaining expenses by $100 per month - $150 per month:
**Decrease**amount available for remaining expenses by $150 per month - $200 per month:
**Decrease**amount available for remaining expenses by $200 per month - $250 per month:
**Decrease**amount available for remaining expenses by $250 per month - $300 per month:
**Decrease**amount available for remaining expenses by $300 per month

**Living Arrangements**- Rent house:
**Decrease**amount available for remaining expenses by $1,000 per month times the COLI factor - Buy house:
**Decrease**amount available for remaining expenses by $1,075 per month times the COLI factor - Apartment — no roommates:
**Decrease**amount available for remaining expenses by $1,000 per month times the COLI factor - Apartment — one roommate:
**Decrease**amount available for remaining expenses by $625 per month times the COLI factor - Apartment — two roommates:
**Decrease**amount available for remaining expenses by $500 per month times the COLI factor - With relatives:
**Decrease**amount available for remaining expenses by $250 per month times the COLI factor

- Rent house:
**Transportation**(includes car payment plus $150 for maintenance, insurance and gasoline)- New SUV:
**Decrease**amount available for remaining expenses by $750 per month times the COLI factor - New midsize car:
**Decrease**amount available for remaining expenses by $600 per month times the COLI factor - New small car:
**Decrease**amount available for remaining expenses by $525 per month times the COLI factor - Used SUV:
**Decrease**amount available for remaining expenses by $650 per month times the COLI factor - Used midsize car:
**Decrease**amount available for remaining expenses by $450 per month times the COLI factor - Used small car:
**Decrease**amount available for remaining expenses by $350 per month times the COLI factor - Public transportation:
**Decrease**amount available for remaining expenses by $60 per month times the COLI factor - Bicycle:
**Decrease**amount available for remaining expenses by $2 per month times the COLI factor - Walk: $0

- New SUV:
**Internet/Cell Phone**- Fastest/Unlimited data:
**Decrease**amount available for remaining expenses by $160 per month - Fastest/Data cap:
**Decrease**amount available for remaining expenses by $100 per month - Slower speed/Unlimited data:
**Decrease**amount available for remaining expenses by $140 per month - Slower speed/Data cap:
**Decrease**amount available for remaining expenses by $80 per month - None/Unlimited data:
**Decrease**amount available for remaining expenses by $100 per month - None/Data cap:
**Decrease**amount available for remaining expenses by $40 per month

- Fastest/Unlimited data:
**Clothing/Accessories**- $0 per month: no change
- $50 per month:
**Decrease**amount available for remaining expenses by $50 per month times the COLI factor - $100 per month:
**Decrease**amount available for remaining expenses by $100 per month times the COLI factor - $150 per month:
**Decrease**amount available for remaining expenses by $150 per month times the COLI factor - $200 per month:
**Decrease**amount available for remaining expenses by $200 per month times the COLI factor - $250 per month:
**Decrease**amount available for remaining expenses by $250 per month times the COLI factor - $300 per month:
**Decrease**amount available for remaining expenses by $300 per month times the COLI factor

**Food**- $150 per month:
**Decrease**amount available for remaining expenses by $150 per month times the COLI factor - $200 per month:
**Decrease**amount available for remaining expenses by $200 per month times the COLI factor - $250 per month:
**Decrease**amount available for remaining expenses by $250 per month times the COLI factor - $300 per month:
**Decrease**amount available for remaining expenses by $300 per month times the COLI factor - $350 per month:
**Decrease**amount available for remaining expenses by $350 per month times the COLI factor - $400 per month:
**Decrease**amount available for remaining expenses by $400 per month times the COLI factor

- $150 per month: