Elbert is graduating from college in eighteen months, but he will need a loan in the amount of $4,250 for his last three 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?

Question

Vocaloid · Answer

for the stafford loan, you simply apply the compound interest formula for monthly compounding at 6.8% for 18 months

for the plus loan, you apply the compound interest formula for monthly compounding at 7.8% for (18 + 6 = 24 months, since there's an extra 6 months where the interest is still accumulating but the payment isn't due yet

compound interest formula:

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when you have the balances figured out, simply identify which is higher and subtract higher balance - lower balance to find the difference.