Consider Gunther, the new freshman who has just received the Stafford student loan and started college. He plans to get maximum loan from Stafford at starting of each year. Though Gavin doesn't have to make any payments while he is in school, 6.8% interest owed (compounded monthly) accrues and is added to balance of loan.
Stafford loan limits:
Freshman $2,625
Sophomore $3,500
Junior $5,500
Senior $5,500
After graduation, Gavin gets the six month grace period. This means that monthly payments are still not needed, but interest is still accruing. After grace period, standard repayment plan is to amortize debt using monthly payments for ten years.
i. Show time line of when loans will be taken.
ii. Find the loan balance when Gavin graduates after his 4th year of school?
iii. Find loan balance 6 months after graduation?
iv. Using standard repayment plan and 6.8% APR interest rate, determine monthly payments Gavin owes after grace period.