You estimate that you will have $32,800 in student loans by the time you graduate. The interest rate is 4.5%. If you want to have this debt paid in full within five years, how much must you pay each month?

Question

Quizplus · Accepted Answer

To calculate the monthly payment for a loan, you can use the loan payment formula or a financial calculator. The formula for the monthly payment on a fixed-rate loan is P = [r*PV] / [1 - (1 + r)^-n], where P is the monthly payment, r is the monthly interest rate (annual rate divided by 12), PV is the present value or initial loan amount, and n is the total number of payments (months). For this problem, the loan amount (PV) is $32,800, the annual interest rate is 4.5% (or 0.045 when expressed as a decimal), and the loan term is 5 years (or 60 months). The monthly interest rate is 0.045 / 12 = 0.00375. Plugging these values into the formula gives a monthly payment of approximately $611.49.

You Estimate That You Will Have $32,800 in Student Loans