Question

Kate took out a subsidized Stafford loan worth $9,710 to pay for college. The interest rate on the loan was 5.9%, compounded monthly. It took Kate 5 years to pay off the loan after graduation. What portion of the total amount she paid represented the interest?
a.
$11,236.22
b.
$9,710.00
c.
$1,526.22
d.
$2,942.37

Answer 1

Monthly rate r = 0.059/12 = 0.0049166667. Term N = 60 months.

Monthly payment
M = 9710 * r / (1 − (1 + r)^−60)
≈ 9710 * 0.0049166667 / (1 − (1.0049166667)^−60)
≈ $187.27

Total paid = 60 · 187.27 ≈ $11,236.22.
Interest = total paid − principal = 11,236.22 − 9,710.00 = $1,526.22.

Answer: c. $1,526.22.