Please research formulas for computing loan interest. Please look for formulas that compound the interest in different ways. Please research different types of college loans: government subsidized, non-subsidized, credit union loans, and bank loans. Compile your research in a published document to be shared with your classmates. Please attack the Cress and Little problem and give a short presentation of your results.
Three types of student loans:
1) Stafford Loans: These are the most common type of loan and virtually anybody who applies will qualify to get the loan. You have to be a US Citizen, and cannot have any outstanding loans from the government. This loan has two categories; Subsidized (gov. will pay the interest while you're still in school, interest rate will also be a little lower) and unsubsized (you have to pay for the interest while in school, or you can deffer them until you graduate. There are several repayment plans once you begin to pay them off).
- The current interest rates for Fed. Stafford loans are 4.66% for undergraduates, and 6.21% for graduates.
- Subsidized and unsubsized loans have the same interest rate, but subsized loans technically have a 0% interest rate while you're in school, making them cheaper overall.
- These loans are compounded monthly, after the grace period when you've just graduated.
2) PLUS Loans: These are for parents to pay for their child's education. These usually have a pretty low fixed interest rate. If you enroll in an automatic payment plan, you can get a discount in your interest rate. They can also deduct the loan from their taxable income, giving them a nice tax break at the end of it.
- Interest rates for PLUS Loans are 7.21% until July 2015. It's a fixed interest rate, also.
- This loan is compounded monthly, like a lot of loans, apparently.
3) Perkins Loans: Yet another federal student loan. It's like a PLUS loan, except that it's coming directly from the school. There are 1800 schools that do this and you must be attending on of them to qualify. This is geared towards those that are in serious financial need. This one kind of partners with FAFSA, so it's a bit more selective about who can qualify. Naturally, the government makes the final decision here.
- Interest rates for a Perkins Loan is 5.% for the duration of the 10-year payment period.
- The Perkins Loan has a nine-month grace period. The payee starts paying in the tenth month, falls below part-time status, or drops out of school.
- The compounding period for this specific loan is monthly (I think).
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Assuming I take out $20,000 in loans over 4 years, the most obvious option would be to take out a Stafford Subsidized loan. They have a fairly low interest rate (4.66), as far as loans go, and I won't have to worry about paying it off until six months after I graduate.
So here's a list of all the needed information:
Initial Loan Balance:$5,000.00
Loan Interest Rate:4.66%
Loan Term:4 years
Minimum Payment:$50.00
Deferment (Months):6
Capitalization Frequency:Monthly
After the deferment period of 6 months, the new loan balance is $5,117.64 , including an additional $117.64.
There will have to be 48 payments of $114.38 , for a total payment of $5,490.24 (including a total of $490.24 in interest) plus an additional $116.50 in interest paid during the deferment period.
With the interest capitalization there are 48 payments of $117.07 , for a total payment of $5,619.36 (including a total of $501.72 in interest plus $117.64 in interest accrued during the deferment period).
So the total amount paid with interest capitalization is $5,619.36 , or $12.62 more than would have been paid without capitalization.
Three types of student loans:
1) Stafford Loans: These are the most common type of loan and virtually anybody who applies will qualify to get the loan. You have to be a US Citizen, and cannot have any outstanding loans from the government. This loan has two categories; Subsidized (gov. will pay the interest while you're still in school, interest rate will also be a little lower) and unsubsized (you have to pay for the interest while in school, or you can deffer them until you graduate. There are several repayment plans once you begin to pay them off).
- The current interest rates for Fed. Stafford loans are 4.66% for undergraduates, and 6.21% for graduates.
- Subsidized and unsubsized loans have the same interest rate, but subsized loans technically have a 0% interest rate while you're in school, making them cheaper overall.
- These loans are compounded monthly, after the grace period when you've just graduated.
2) PLUS Loans: These are for parents to pay for their child's education. These usually have a pretty low fixed interest rate. If you enroll in an automatic payment plan, you can get a discount in your interest rate. They can also deduct the loan from their taxable income, giving them a nice tax break at the end of it.
- Interest rates for PLUS Loans are 7.21% until July 2015. It's a fixed interest rate, also.
- This loan is compounded monthly, like a lot of loans, apparently.
3) Perkins Loans: Yet another federal student loan. It's like a PLUS loan, except that it's coming directly from the school. There are 1800 schools that do this and you must be attending on of them to qualify. This is geared towards those that are in serious financial need. This one kind of partners with FAFSA, so it's a bit more selective about who can qualify. Naturally, the government makes the final decision here.
- Interest rates for a Perkins Loan is 5.% for the duration of the 10-year payment period.
- The Perkins Loan has a nine-month grace period. The payee starts paying in the tenth month, falls below part-time status, or drops out of school.
- The compounding period for this specific loan is monthly (I think).
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Assuming I take out $20,000 in loans over 4 years, the most obvious option would be to take out a Stafford Subsidized loan. They have a fairly low interest rate (4.66), as far as loans go, and I won't have to worry about paying it off until six months after I graduate.
So here's a list of all the needed information:
Initial Loan Balance:$5,000.00
Loan Interest Rate:4.66%
Loan Term:4 years
Minimum Payment:$50.00
Deferment (Months):6
Capitalization Frequency:Monthly
After the deferment period of 6 months, the new loan balance is $5,117.64 , including an additional $117.64.
There will have to be 48 payments of $114.38 , for a total payment of $5,490.24 (including a total of $490.24 in interest) plus an additional $116.50 in interest paid during the deferment period.
With the interest capitalization there are 48 payments of $117.07 , for a total payment of $5,619.36 (including a total of $501.72 in interest plus $117.64 in interest accrued during the deferment period).
So the total amount paid with interest capitalization is $5,619.36 , or $12.62 more than would have been paid without capitalization.