Question

Earl is graduating from college in one year, but he will need a loan in the amount of $3,650 for his last two semesters. He may either receive an unsubsidized Stafford Loan with an interest rate of 6.8%, compounded monthly, or his parents may get a PLUS Loan with an interest rate of 7.8%, compounded monthly. The Stafford Loan has a grace period of six months from the time of graduation. Which loan will have a higher balance and by how much at the time of repayment?

Answer 1

a) The Standford Loan has a higher balance by $95.69
b) The PLUS Loan has a higher balance by $60.69
c) The PLUS Load has a higher balance by $39.02
d) The Standford Loan has a higher balance by $246.11

Answer 2

Did you get anywhere with this one? Did you get started at all?

Answer 3

No. I'm just really lost.

Answer 4

Hint:

Use the formula

A = P(1 + r/n)^(nt)

and keep the grace period of 6 months in mind (ie you'll have to add 6 months to the time t for the stafford loan)

Answer 5

Thank you. I feel silly because you posted the same formula on my other question, and I could've just used it for this one. But thanks

Answer 6

Let's compute the balance for the stafford loan

A = P(1 + r/n)^(nt)

A = 3650(1 + 0.068/12)^(12*18/12)

A = ???

Note: use t = 18/12 because t is in years and instead of using t = 12/12 or t = 1 year, you have to add on the 6 month grace period where interest is still accrued.

Answer 7

So what do you get

Answer 8

3818.79

Answer 9

I'm not getting that

Answer 10

I'm getting 4040.79

Answer 11

Hmm...maybe I typed it in incorrectly. I'll try again

Answer 12

ok that's what I got. I put in 12/18 instead of 18/12

Answer 13

ah i gotcha

Answer 14

now compute the balance for the PLUS loan

Answer 15

A = P(1 + r/n)^(nt)

A = 3650(1 + 0.078/12)^(12*12/12)

now t = 12/12 or just t = 1

A = ???

Answer 16

I got 3945.10

Answer 17

me too

Answer 18

now subtract the two

Answer 19

95.69

Answer 20

you nailed it

Answer 21

thanks, again! :)

Answer 22

you're welcome