Chapter 8.3, Problem 49E

Math in Your Life: Between the Numbers

Government loans. In Example 3 we assumed an interest rate of $12\%$, which could be possible with a private lender. You might be able to obtain government student loans that have much lower rates. Redo Example 3 assuming you have an interest rate of $4.8\%$, and again calculate how much you would still owe on your loan after making one payment.

Example 3 Paying Off a Student Loan

Assume that you just graduated from college with $\$35,000$ in student loans* that have a $12\%$ annual simple interest rate (this rate is possible with a private lender). In order to reduce your debt as quickly as possible, beginning next month you are going to pay $\$500$ per month toward the loan. After your first payment, how much will you owe on your loan?

*The numbers in this example are based on a real case in which a friend asked me what the best way would be to pay off his $\$35,000$ credit card debt.