Alyssa may apply for an unsubsidized Stafford Loan with an interest rate of 6.8%, compounded monthly and a grace period of six months from the time of graduation. Or, Alyssa may have her parents apply for a PLUS Loan with an interest rate of 7.8%, compounded monthly. She will be graduating from college in a year and a half and needs a loan in the amount of $11,895. Which loan is the better choice and why?
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-The Stafford Loan is the better choice because it is $197.81 cheaper than the PLUS Loan.
-The PLUS Loan is the better choice because it is $256.32 cheaper than the Stafford Loan.
-The PLUS Loan is the better choice because it is $454.13 cheaper than the Stafford Loan.
-The Stafford Loan is the better choice because it is $273.50 cheaper than the PLUS Loan.
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I tried. Give me a formula and I can do it. I can't find the formula.
Amount after n months, compounded monthly
r=interest rate per annum
P=principal (borrowed amount)
n=number of months money was borrowed.
Calculate the amount to be repaid for each option and make your choice accordingly.
@mathmate what would n be? i put 18, but i don't think that's right.
I am not too sure if the "grace period" is just an extended repay period where interest continues to grow.
If you calculate it for n=18, you would get one of the answers. And for n=24, you would get another answer. The answer depends on when she is ready to repay (completely), 18 or 24 months. Make a choice.
Grace period is the months where interest isn't charged. Like a credit card.
I'm not getting the right answer. I'll just pick a random answer.
If that's the interpretation, then PLUS loan will charge (higher) interest for 24 months while the Stafford loan charges (lower) interest for 18 months. The difference comes to be $727.64, which is not one of the answers.
The Stafford Loan is the better choice because it is $197.81 cheaper than the PLUS Loan.