Question

subsidized loans

2010-2011-4.5%

2011-2012-3.4%

2012-2013-3.4%

2013-2014-3.86%

and then unsubsidized 2012-2013 6.8%

LAB #5 Situation #1: Student Loans Show ALL your work for this situation, even writing down what you put into your calculator. The majority of your points will come from your work and your explanation (#3), not your answers. For this situation you are going to calculate how much interest you will have to pay on school loans given a set of situations. Do not round your calculations till the end. Loans you took out to complete your undergraduate degree: 2010-2011: Direct Subsidized Loan $3,250 2011-2012: Direct Subsidized Loan $4,100 2012-2013: Direct Subsidized Loan $700 2012-2013: Direct Unsubsidized Loan $2.000 2012-2013: Direct Subsidized Loan $2,750 2013-2014: Direct Subsidized Loan $5,000 Assume the following: Your unsubsidized loan starts collecting interest the day you take it out. You take out the unsubsidized loan on August 19, 2012 and you graduate on May 15 in 2014. Your subsidized loans collect interest the day you graduate, but the first payment for all the loans above is not due until 6 months after you graduate, on November 19, 2014. Also assume that the interest for all the loans above compounds daily. You can forget about leap year. Given all this information answer the following: On the first day that a payment is due: November 1", 2014 how much interest do you owe above your initial principal? (aka how much interest have your loans collected up to this point....before your first bill is even due?) 2nd question: If the unsubsidized loan was $5,000 how much would this have changed your total interest due in question #1? **Note your principal is different in this question. 3. question: If you wanted to pay off your loans in monthly payments starting on November 15 2014, would calculating your monthly payment be as simple as taking your total in question #1 (principle + interest) and dividing by the number of months you want to pay off your loan in? Example: If I wanted to pay the total amount of my loans off in 5 months, to determine my monthly payment could I do: Total + 5 months = monthly payment

Answer 1

#1). Total interest owed on Nov.1, 2014 is $634.26

Formula				I/365			d2-d1	[L*(1+r)^N]-L
Year	Type of loan	Loan amount (L)	Interest p.a. (I)	Interest rate per day (r)	Interest start date (d1)	1st payment date (d2)	Number of days (N)	Interest owed
2010-2011	Direct subsidized loan	3250	4.50%	0.01233%	01-05-2014	01-11-2014	184	74.56
2011-2012	Direct subsidized loan	4100	3.40%	0.00932%	01-05-2014	01-11-2014	184	70.88
2012-2013	Direct subsidized loan	700	3.40%	0.00932%	01-05-2014	01-11-2014	184	12.10
2012-2013	Direct unsubsidized loan	2000	6.80%	0.01863%	01-08-2012	01-11-2014	822	330.94
2012-2013	Direct subsidized loan	2750	3.40%	0.00932%	01-05-2014	01-11-2014	184	47.54
2013-2014	Direct subsidized loan	5000	3.86%	0.01058%	01-05-2014	01-11-2014	184	98.24
Total								634.26

#2). If the unsubsidized loan amount is $5,000 then interest owed will be $1,130.67

Formula				I/365			d2-d1	[L*(1+r)^N]-L
Year	Type of loan	Loan amount (L)	Interest p.a. (I)	Interest rate per day ('r)	Interest start date (d1)	1st payment date (d2)	Number of days (N)	Interest owed
2010-2011	Direct subsidized loan	3250	4.50%	0.01233%	01-05-2014	01-11-2014	184	74.56
2011-2012	Direct subsidized loan	4100	3.40%	0.00932%	01-05-2014	01-11-2014	184	70.88
2012-2013	Direct subsidized loan	700	3.40%	0.00932%	01-05-2014	01-11-2014	184	12.10
2012-2013	Direct unsubsidized loan	5000	6.80%	0.01863%	01-08-2012	01-11-2014	822	827.36
2012-2013	Direct subsidized loan	2750	3.40%	0.00932%	01-05-2014	01-11-2014	184	47.54
2013-2014	Direct subsidized loan	5000	3.86%	0.01058%	01-05-2014	01-11-2014	184	98.24
Total								1130.67

#3). No, monthly payment would not be equal to (principal + interest) divided by the number of payments. Compound interest is being used here so for every period interest will be calculated on the outstanding principal, at the beginning of the principal. As a result, interest and principal for every period will keep changing.