Question

Earl is graduating from college in one year, but he will need a loan in the amount of $3,650 for his last two semesters. He may either receive an unsubsidized Stafford Loan with an interest rate of 6.8%, compounded monthly, or his parents may get a PLUS Loan with an interest rate of 7.8%, compounded monthly. The Stafford Loan has a grace period of six months from the time of graduation. Which loan will have a higher balance and by how much at the time of repayment? (2 points)

Select one:
a. The Stafford Loan has a higher balance by $95.69.
b. The PLUS Loan has a higher balance by $60.69.
c. The PLUS Loan has a higher balance by $39.02.
d. The Stafford Loan has a higher balance by $246.11.

Answer 1

This one is tough since this requires us to make some assumptions about the problem. One question is whether or not the PLUS loan is subsidized or not. Another question is whether interest accrues during the grace period. And there may be another question I'm forgetting about as well.

So I will have to make some assumptions in order to answer this question. Assuming that the PLUS loan is unsubsidized and that the grace period DOES ACCRUE interest:

The Stafford Loan is then:

3650 * (1 + .068/12)^18 = $4040.79

And the PLUS Loan is then:

3650 * (1 + .078/12)^12 = $3945.10

Therefore the answer is A)

Now IF the grace period DOES NOT ACCRUE interest:

Then the Stafford Loan:

3650 * (1 + .068/12)^12 = $3906.08

which makes the answer D)

I hope that helps!

Answer 2

The answer is NOT D or C..

It is A.) The Stafford Loan has a higher balance by $95.69

I'm tired of the people who put wrong answers on here.