Question

Bianca took out a $2,600 unsubsidized Stafford loan. She will be attending school for four years, and she wishes to have the loan paid off five years before its normal ten-year duration is finished. The loan has an interest rate of 6.2%, compounded monthly. How much will she have to pay monthly to avoid interest capitalization?
a.
$12.40
b.
$19.29
c.
$13.43
d.
$17.36

Answer 1

Unsubsidized means interest accrues while she's in school; to avoid capitalization she must pay the interest as it accrues monthly.

Monthly rate = 0.062/12 = 0.0051666667
Monthly interest = 2600 × 0.0051666667 ≈ 13.4333 → $13.43

Answer: c. $13.43