Question

If you need to take out a $40,000 student loan 2 years before graduating, which loan option will result in the lowest overall cost to you: a subend an w 6.6% interest for 10 years, a federal unsubsidized loan with 5.8% interest for 10 years, or a private loan with 7.0% interest and a term of 15 years? How would you save over the other options? All payments are deferred for 6 months after graduation and the interest is capitalized

(a) Find the total cost of the subsidized loan.

Answer 1

The total cost of the subsidized loan is $41,319.60.

Step-by-step explanation:

To determine the loan option that will result in the lowest overall cost, we need to calculate the total cost for each option. Let's start by finding the total cost of the subsidized loan.

Subsidized loan amount = $40,000
Interest rate = 6.6%
Term = 10 years
Deferred payment period = 6 months
Interest capitalized = Yes

Step 1: Calculate the interest accrued during the deferred payment period

Deferred period = 6 months = 0.5 years
Interest during deferred period = (Loan amount) * (Interest rate) * (Deferred period) = $40,000 * 0.066 * 0.5 = $1,320

Step 2: Capitalize the accrued interest

Loan amount after capitalizing interest = $40,000 + $1,320 = $41,320

Step 3: Calculate the monthly payment

Monthly payment = (Loan amount after capitalizing interest) / (Number of months) = $41,320 / (10 years * 12 months/year) = $344.33

Step 4: Calculate the total cost

Total cost = (Monthly payment) * (Number of months) = $344.33 * (10 years * 12 months/year) = $41,319.60

Therefore, the total cost of the subsidized loan is $41,319.60.