Blog #4

STUDENT LOANS LECTURE

My Name is Professor Bejarano and today I am going to teach you all how to figure out important details about your student loans using a simple formula. 

College in the United States is growing increasingly in cost causing many people to use loans in order to pay for education. About two thirds of all college students earning bachelor’s degrees have at least one student loan, with an average debt of about $27,000 upon graduation. The point of loans is to burrow money that at the time you might not necessary have or are willing to spend. Banks and institutions that give out college loans earn money themselves using interest rates on the loans.

Today we will learn how to 

1. Calculate what monthly payments are for a loan

2. How much will need to be paid over the lifetime of a loan

3 .What the total interest you will pay on a loan

Using this formula you will be able to calculate how much money a simple loan will cost depending on when and how you pay it. 

Definitions: 

PMT= regular payment amount 

P=starting loan principle(amount borrowed) 

APR= annual percentage rate 

n=Number of payment periods per year

Y=loan term in years 

Examples- 

1. Suppose you have student loans totaling $2,500 when you graduate from college. The interest rate is APR= 12% and the loan term is 8 years. What are your monthly payments? How much will you pay over the lifetime of the loan? What is the total interest you will pay on the loan? 

Solution- The starting loan is P=$2,500 the interest rate is APR=0.12, the loan term is Y= 8 years, and n=12 for monthly payments. We use the loan payment formula to find the monthly payments: 

2. Suppose you have student loans totaling $5,000 when you graduate from college. The interest rate is APR= 10% and the loan term is 9 years. What are your monthly payments? How much will you pay over the lifetime of the loan? What is the total interest you will pay on the loan? 

Solution- The starting loan principal is P= $5,000 the interest rate is APR= 0.10, the loan term is Y=9 years, and n=12 for monthly payments. We use the loan payment formula to find the monthly payments: 

I hope this lesson has taught you all a simple way to find what your monthly payments are on a college loan, how much you will pay over a lifetime of the loan and what the total interest you pay on the loan will be. These are all important things to take into consideration before applying for college loans.