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Simple Interest










































Part III: Simple Interest (Applying Percentages, Decimals, and Fractions)

Student loans are a hot discussion when it comes to paying back not only the initial borrowed amount but interest on top of the loan. Typical student loans do not start accumulating interest until after the student has been out of school, usually one year. Base the following that the individual has been out of school and is starting to look at the interest on a student loan.

Give an example of an amount of a realistic student loan for an individual that attended a university for at least 2 years.
Research and find the current average interest rate for student loans. Be sure to reference the site(s) you chose your interest rate.
How much interest was charged at the end of the first day of the loan (assuming no payments have been made and interest accumulates at the end of the first day)? Do you find this number surprising?
How much interest has been accumulated after one year of the loan (again assuming no payments have been made and interest accumulates at the end of the first year)?
The loan agency has allowed you to defer the loan for one year if you pay 8% of the original loan today. What is the amount that you would send the loan agency? What is the new loan amount?
Find the interest on the new loan amount, after paying 8% off, for one day and then again for one year. Do you think paying the 8% was worth it when viewing the interest accumulated by day or by year? Discuss when this 8% might be beneficial for paying off part of the original loan.

Comments for Simple Interest

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Feb 15, 2012
Student Loans - Simple Interest
by: Staff

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Part II


Original amount borrowed: $35,000

Estimated Interest accrued during school, and for 1 year after leaving school (added to the amount borrowed): $7,500

Total the student now owes: $42,500



Interest Rate Factor (simple interest) = (interest rate)/365.25 days

Interest Rate Factor (simple interest) = (6.80 %)/365.25 days

Interest Rate Factor (simple interest) = .018617385352 % per day

Interest Rate Factor (simple interest) = .00018617385352 per day


The interest at the end of the first day = (.00018617385352)*42500

The interest at the end of the first day = 7.9123887746

The interest at the end of the first day = $7.91



How much interest has been accumulated after one year of the loan (again assuming no payments have been made and interest accumulates at the end of the first year)?

The interest for an entire year = (.00018617385352)*42500*365.25

The interest for an entire year = $2890.00



The loan agency has allowed you to defer the loan for one year if you pay 8% of the original loan today.

The original loan was: $35,000

What is the amount that you would send the loan agency?

amount that you would send the loan agency = .08 * 35000

amount that you would send the loan agency = $2,800

What is the new loan amount?

new loan amount = current balance (not original balance) - 2800

new loan amount = 42500 - 2800

new loan amount = $39,700



Find the interest on the new loan amount, after paying 8% off, for one day and then again for one year.


The interest at the end of the first day = (.00018617385352)*39700

The interest at the end of the first day = 7.391101984744

The interest at the end of the first day = $7.39


The interest for an entire year = (.00018617385352)* 39700*365.25

The interest for an entire year = $2699.60





Do you think paying the 8% was worth it when viewing the interest accumulated by day or by year?

It depends on your personal situation. After paying $2800, and then not making any payments for a year, the loan balance is $42,400 (approximately the same as it was). Paying $2800 is about the same as paying the interest for 1 year.

How much interest has been accumulated after one year of the loan (again assuming no payments have been made and interest accumulates at the end of the first year)?

The interest for an entire year = $2699.60


Discuss when this 8% might be beneficial for paying off part of the original loan.

Paying 8% of the original loan will have the maximum benefit the earlier (in years) it is paid.





Thanks for writing.

Staff
www.solving-math-problems.com



Feb 15, 2012
Student Loans - Simple Interest
by: Staff


Part I

Question:

Part III: Simple Interest (Applying Percentages, Decimals, and Fractions)

Student loans are a hot discussion when it comes to paying back not only the initial borrowed amount but interest on top of the loan. Typical student loans do not start accumulating interest until after the student has been out of school, usually one year. Base the following that the individual has been out of school and is starting to look at the interest on a student loan.

Give an example of an amount of a realistic student loan for an individual that attended a university for at least 2 years.
Research and find the current average interest rate for student loans. Be sure to reference the site(s) you chose your interest rate.
How much interest was charged at the end of the first day of the loan (assuming no payments have been made and interest accumulates at the end of the first day)? Do you find this number surprising?

How much interest has been accumulated after one year of the loan (again assuming no payments have been made and interest accumulates at the end of the first year)?

The loan agency has allowed you to defer the loan for one year if you pay 8% of the original loan today. What is the amount that you would send the loan agency? What is the new loan amount?

Find the interest on the new loan amount, after paying 8% off, for one day and then again for one year. Do you think paying the 8% was worth it when viewing the interest accumulated by day or by year? Discuss when this 8% might be beneficial for paying off part of the original loan.


Answer:


Estimated Cost for 2 years (public University, in-state resident): $35,000


Research and find the current average interest rate for student loans. Be sure to reference the site(s) you chose your interest rate.

The current average interest rate for student loans (2011 – 2012) is 3.4% for undergraduate subsidized loans and 6.80% for undergraduate unsubsidized loans.

Source: http://www.staffordloan.com/stafford-loan-info/interest-rates.php

Interest is charged (and begins to accrue) on unsubsidized loans beginning with the date the funds are disbursed.

If the loan is subsidized, the Federal government pays the interest while a student is in school.



How much interest was charged at the end of the first day of the loan (assuming no payments have been made and interest accumulates at the end of the first day)? Do you find this number surprising?


Based on the question, you are researching is an “Unsubsidized Loan”. The current interest rate is 6.80%. I assume the student has never made any payments, and all interest charged during the school years has been capitalized (added to the original loan).

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