A friend of yours who had taken an engineering economy course stated that paying on a student loan even before graduation will give you a big break on the total loan costs. She cites the following example to illustrate her point. A student takes out a $10,000 loan for their freshman year of college, and the interest rate is 7% compounded semi-annually over 10 years. With full deferral of this loan, meaning that no payments are dueuntil six months after graduation, the original loan will have grown to $13,630 thanks to interest: F = $10, 000(F/P, 3.5% per six months, 9 periods) = $13, 630. Your friend says that paying just $75 per month, or $4,050 over the same 4.5 years would reduce the ending balance to about $8,960. Show how this amount ($8,960) was determined.
A friend of yours who had taken an engineering economy course stated that paying on a student loan even before graduation will give you a big break on the total loan costs. She cites the following example to illustrate her point. A student takes out a $10,000 loan for their freshman year of college, and the interest rate is 7% compounded semi-annually over 10 years. With full deferral of this loan, meaning that no payments are due
until six months after graduation, the original loan will have grown to $13,630 thanks to interest: F = $10, 000(F/P, 3.5% per six months, 9 periods) = $13, 630. Your friend says that paying just $75 per month, or $4,050 over the same 4.5 years would reduce the ending balance to about $8,960. Show how this amount ($8,960) was determined.
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