Question

It is estimated that the average principal owed for student loans in 2014 was $28,950 per student.† If market rates go up and the interest rate for student loans increases from 4.29% to 6.8%, estimate how much more interest students will pay over a 10-year repayment period for this average amount owed, at the 6.8% rate as compared with a rate of 4.29%. Round all figures to the nearest cent.

Answer 1

First compute the interest that the student pay with the first rate:

`28,950(1+0.0429)^(10)= 44063`
Then compute the interest using the second rate, like this:

`28,950(1+0.068)^(10)=55893`
Now compute the difference:

`55893-44063=11830`
The student will pay $11830 more.