Question

You acquire a $15,000 unsubsidized loan at 6.8% interest. You will graduate 4 years later.

a) How much simple interest accumulated while you are still in school for an unsubsidized loan?

b) If you capitalized the loan, what will be the balance when you graduate?

c) After you graduate, you will begin making payments on your loan at 6.8% compounded monthly for 10 years. What is the monthly payment for this loan?

d) How much interest will be paid for this loan?

e) Explain what it means of the loan is not capitalized.

f. Now suppose you acquire the same loan of $15,000 at 6.8% compounded monthly for 10 years but it is subsidized. What is the monthly payment for this loan?

g) How much interest will you pay for the subsidized loan?

h) What is the difference in savings for the subsidized loan?

Answer 1

a) For an unsubsidized loan of $15,000 at 6.8% interest for 4 years, the simple interest accumulated while you are still in school is **$4,080**.

b) If you capitalized the loan, the balance when you graduate would be **$20,322.68**.

c) After you graduate, you will begin making payments on your loan at 6.8% compounded monthly for 10 years. The monthly payment for this loan is **$174.30**.

d) The total amount of interest paid for this loan is **$10,118.00**.

e) If the loan is not capitalized, it means that the interest accrued during the in-school period is not added to the principal balance of the loan. Instead, it is paid off separately after graduation.

f) For a subsidized loan of $15,000 at 6.8% compounded monthly for 10 years, the monthly payment for this loan is **$163.19**.

g) The total amount of interest paid for this subsidized loan is **$9,782.80**.

h) The difference in savings for the subsidized loan is **$335.20**.