Ursula took out an unsubsidized Stafford loan to help pay for her first of her four years at college. The loan had a principal of $6,400, an interest rate of 6.9% compounded monthly. After college, Ursula started making monthly payments over a 10 year period on her loan. What percentage of the total cost of the loan is the finance charge?

Because the loan is unsubsidized, interest accrues during Ursula’s four years in college. The balance after 48 months is about $6,400(1 + 0.069/12)^48 = $8,428. Amortizing that balance over 120 monthly payments at the same rate gives payments of about $97.45, or about $11,694 total. The finance charge is about $11,694 − $6,400 = $5,294, which is about 45.25% of the total cost, so the best answer is 45.25%.

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