Loan Project

When it comes to college loans, there are a few different options to choose from. You may apply for a bank loan, a government subsidized loan, or a government unsubsidized loan. A bank loan, obviously is taken out through your bank. Sallie Mae, for example, offers interest rates for student loans between 3.17% and 9.37%. A government subsidized loan is a loan option offered by the government for lower income families and offers a 3.86% interest rate. Finally, a government unsubsidized loan is a loan option offered by the government to any student. It's undergraduate interest rate is 3.86% however, it jumps to 5.41% for graduate students.
If we take out a $5,000 loan every year for fours years, we can use the equation A=P(1+r)^t to figure out how long it will take to pay of the loans where A is the amount owed with interest, P is the principle amount borrowed, r is the interest rate divided by 100, and t is the amount of time in years.
Say we take out four government unsubsidized loans,one for each year of college. To calculate how much money has to be repaid on the Freshman year loan at the end of our four years in college, we use set up the equation as follows: A=5000(1+.0386)^4. The 4 represents the four years that it will be accumulating interest. When we use that same equation for four years, only changing the value of t, we will have four totals. For the freshman loan, $5,817.86. For sophomore year, $5,601.64. For junior year, $5393.45. For senior year, $5193.00. This gives a total debt of $22,005.95.
Now, since that total will continue to accumulate interest as it is paid off, we can't simply divide it by a certain number of year to find the monthly payments. Instead, we us the equation from earlier. This time, it is A=22005.95(1+.0386)^15. In this case, we are going to determine how much money will have to be paid each year to pay off the debt in fifteen years. In fifteen years, it the debt new amount owed will be $38,838.72. To find the monthly bill, we divide $38,838.72 by 15 times twelve: 38838.72/(15*12). We multiply fifteen by twelve to get the monthly bill since there are twelve months in a year. Therefore, it will cost $215.76 per month for fifteen years to pay off the student debt.