Answer to Question #107225 in Economics for anas

Question

A lump-sum loan of $15,000 is needed by
Chandra to pay for college expenses. She has obtained
small consumer loans with 10% interest per year in
the past to help pay for college. But her father has
advised her to apply for a PLUS student loan charging
only 7% interest per year. If the loan will be repaid in
full in 5 years, what is the difference in total interest
accumulated by these two types of student loans?

Answer 1

Chandra will pay  $15,000*0.1*5=$7,500 of total interest

PLUS student loan would cost $15,000*0.07*5=$5,250

The difference is $7.500-$5,250=$2,250