Benchmark 3: Paying Off Loans

(Make a copy and share with group + Su! Rename to “Benchmark: 3 Block: 3 Group: 4”)

Now that you and your group have created a budget, looked up information about loans, and calculated how
much money you’ll need to borrow, you will now create a monthly payment plan to pay off your loans.

As you pay off your loans monthly, interest will cause your loan to increase slightly each month as well. In
other words, every month, your loan increases from interest, then decreases from your payments. Our current
compound interest formula does not include payments, so we need to use a different formula:
r r m
n (1+ n )
A = P* (1+ nr )m −1 , ​where “A” is the amount paid every month, “P” is our original principal loan
borrowed, “r” is our interest, “n” is compounded periods (all monthly in this case), and “m” is the total
number of payments (number of months paid).

What you will do is, for each loan you take out, calculate how much you would have to pay for either 5, 10, or
20 years. The purpose of this is for us to get a good idea of how interest can affect how much we have to pay
within a certain amount of time.

Note:
1. For the loans, keep in mind when the interest begins to accrue, as well as your grace period. For
example, subsidized loan interests don’t begin until 6 months after you graduate, so subtract 6
months from your calculations.
2. For unsubsidized and direct PLUS, consider when each loan begins. That will impact the
amount of time and interest for each year.

In summary, use:

For amount owed: B = P (1 + nr )nt

r r m
n (1+ n )
For amount paid: A = P × (1+ nr )m −1
 Year 1: Gerson-
Loan Type Original Amount Amount Amount Amount Amount Amount
Principal Owed in Owed in Owed in 20 Paid Paid Paid
5 Years 10 Years Years Monthly Monthly Monthly in
in 5 in 10 20 Years
Years Years

Subsidized $3,500 $4,502.95 $5,793.30 $9,589.25 $72.59 $38.71 $23.54

Unsubsidize 0 0 0 0 0 0 0
d

Direct Plus 0 0 0 0 0 0 0

Year 2: Jose
Loan Original Amount Amount Amount Amount Amount Amount
Type Principal Owed in 5 Owed in Owed in Paid Paid Paid
Years 10 Years 20 Years Monthly in Monthly in Monthly in
5 Years 10 Years 20 Years

Subsidiz $3,875.40 4,861.86 6,255.06 10,353.58 $80.37 $42.86 $26.06

ed

Unsubsid 0 0 0 0 0 0 0
ized

Direct 0 0 0 0 0 0 0
Plus

Year 3: Guadalupe
Loan Type Original Amount Amount Amount Amount Amount Amount
Principal Owed in 5 Owed in Owed in Paid Paid Paid
Years 10 Years 20 Years Monthly in Monthly in Monthly in
5 Years 10 Years 20 Years

Subsidized $5,500 $6,899.99 $8,877.24 $14,693.89 $114.07 $60.83 $36.99

(5.05%)

Unsubsidized 0 0 0 0 0 0 0
(5.05%)

Direct Plus 0 0 0 0 0 0 0
(7.06%)
Year 4: Gerson
Loan Original Amount Amount Amount Amount Amount Amount
Type Principal Owed in 5 Owed in Owed in 20 Paid Paid Paid
Years 10 Years Years Monthly Monthly in Monthly in
in 5 Years 10 Years 20 Years

Subsidiz $5,500 $6,899.99 $8,877.24 $14,693.89 $114.07 $60.83 $36.99

ed

Unsubsid 0 0 0 0 0 0 0
ized

Direct 0 0 0 0 0 0 0
Plus