Exercises: Student Loans: Federal Versus Private

Name two differences between federal student loans and private student loans. Include who makes each type of loan.

Explain the difference between a subsidized and an unsubsidized federal loan. Which one accrues interest while the student is still in school?

Ethan takes out a $\$5{,}000$ unsecured federal loan at $5\%$ simple annual interest. Interest accrues for the 4 years he is in school. Find the total interest that accrues during those 4 years and the balance at graduation.

Priya borrows $\$20{,}000$ at $5\%$ interest on a 10-year standard repayment plan. The monthly payment is $\$212.13$. Find the total amount she repays over 10 years and the total interest she pays.

Liam needs $\$10{,}000$. A federal loan has a fixed rate of $6.5\%$. A private loan has a variable rate that starts at $4.5\%$ and could rise to $8\%$. Find the interest for the first year under each rate. Discuss one advantage and one risk of the private loan compared with the federal loan.

Olivia owes $\$30{,}000$ at $6\%$. On a 10-year plan, her monthly payment is $\$333.06$. On a 20-year plan, it is $\$214.93$. Find the total paid and the total interest under each plan. Explain the trade-off between a lower monthly payment and a lower total cost.

Malik needs to borrow $\$16{,}000$. Option A is a federal loan at $6.5\%$ fixed with a 10-year monthly payment of $\$181.60$. Option B is a private loan at $5.0\%$ fixed that requires a cosigner and has a 10-year monthly payment of $\$169.71$. Find the total repayment and total interest for each option and the difference. Then argue which option you recommend. Consider repayment protections (deferment, forbearance, income-driven plans), the cosigner's risk, and what happens if Malik loses his job.

Aiden will graduate owing $\$35{,}000$ at $6\%$ and expects a starting salary of $\$48{,}000$ per year. A common guideline suggests student loan payments should be at most about $10\%$ of gross income. On a 10-year plan his payment is $\$388.57$ per month, and on a 15-year plan it is $\$295.35$ per month. Find his gross monthly income, $10\%$ of that income, and the total interest on each plan. Decide which plan fits the guideline and justify your choice, including what he could do to pay it off sooner.