6
QuizMultiple Choice

Student Loans

Question 6 • SEPHS - BUS 240 - Personal Finance (Summer)

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?

Answer
A
$12.40
B
$19.29
C
$13.43
D
$17.36

Explanation

To avoid interest capitalization, Bianca must pay the interest that accrues each month while she is in school. The monthly interest is $2,600 × (0.062 ÷ 12) = about $13.43. Therefore, the correct choice is $13.43 per month; the payoff schedule does not change the monthly interest on the loan balance.

AI-written and checked against the verified answer.

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