How To Calculate Your Student Loan Payment - YouTube

Welcome to part 2 in our series on federal student loans. If you were here

in part one you were here when we covered three of the more commonly known

repayment plans that are based off of what you make rather than what you owe.

So we covered the revised pay as you earn, the pay as you earn, and the income based

repayment plan. All three of those plans ask you to pay a percentage of your

discretionary income each month. So today, we're going to cover what that

discretionary income is and how it is used by your loan servicer to determine

what you pay each month towards your loan. Let's get started

Before we get to the calculation to determine your discretionary income we

have to introduce the term federal poverty line. See every year the

Department of Health and Human Services releases a federal poverty line and

based on the number of people in your household they are going to say at this

salary or below, if that is your income you are considered impoverished. For

example in the mainland states, the 48 mainland states, in 2017 the federal

poverty line for a one-person household is $12,060. As you

add more people to your household, the federal poverty line increases. So if you

want to see what it is for your situation or if you live in Hawaii or

Alaska you can actually follow the link at the end of this video and it will

take you to that page so you can find the federal poverty line for your

household. Now that you know that term we can tell you the calculation for

discretionary income, and that is your salary minus one and a half times the

federal poverty line for the number of people in your household. Let's look at

an example: we have a single person living in the state of Georgia that makes

$50,000 a year and wants to sign up for the pay-as-you-earn plan, which asks you

to pay 10% of your discretionary income. Now if their payment we're 10% of their

gross income they would owe $5,000 a year, or about $416 per month. But

remember, that 10% is based off discretionary income. So let's calculate

that number based off of the formula that their loan servicer is going to use.

The federal poverty line for a one-person household is $12,060. So

to calculate their discretionary income we would take their salary, $50,000 and

we would subtract 150% of that poverty line, which would

be $18,090. The remaining $31,910,

will be what's considered their discretionary income each year. So

when their servicer calculates that 10% it would be based off of this

number: that would be $3,191 per year or

about $265 per month. That's no chump change but

it's smaller than that person might have expected if they didn't understand how

that calculation works. So why is it important to know all of this? Why would

a person pay a percentage of their income rather than actually focus on

paying back their loans? Well if you're in a situation where you have

astronomical loan balances or you just don't make enough money to pay back using the

standard loans, you might have put yourself in a position where you feel

like the opportunity cost of paying on those loans is too high. What I mean by

that is it may take so much of your income that you feel it's either pay the

loans or save but I can't do both. The good thing about these plans is they

do offer you loan forgiveness and while there are stipulations with this it is

something that is an option or some relief for people who are in situations

where they feel like they want to accomplish multiple goals but haven't

found a way to do so yet. If you understand how these payment programs

work it's not about whether it's the absolute thing that you have to do but

for those that is correct and the right thing for them to do you want to be

informed ,you want to be knowledgeable of that plan and how all of the components

work together to allow you to not only pay back your loans but also address

some other goals as well. In the next video we're going to talk about what the

forgiveness of those loans means and I'm really glad that you guys tuned in today

to hear a little bit more about how these payment programs work and how

they're calculated. Again, if you liked what you heard then I invite you to

share this video with as many people as you possibly can and if you want to

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