Luke's luck changed, and he was able to enroll full-time again. He has become employed full-time...

Question:

Luke's luck changed, and he was able to enroll full-time again. He has become employed full-time and earns $40 per hour. Becoming employed full-time will help him repay the $35,000 he borrowed in direct student loans at 4.66%. Because all students who borrow direct loans are placed into the standard repayment plan when entering repayment by the Department of Education, Luke looked into the details. He realized the cost benefit and chose to remain in this plan, it is the shortest in length and students pay the least amount of interest. After doing some calculations, he estimated his monthly payment will be $365, which includes principal and interest. In order for Luke to be able to afford his repayment under the Standard plan comfortably, he will need to allocate 12% of his paycheck. If Luke's monthly payment is $365.44 (principal and interest) and it takes 10 years to pay back the loan, what is the total cost of the loan? What will be the total interest paid under this plan? How much will Luke pay over the life of the repayment plan? How much does Luke need to earn per year (at least) to comfortably afford his repayment if he needs to allocate 12% of his paycheck?

Interest:


EMI consists the amount of interest and principal.

To find the total interest, we have to subtract principal amount from total amount paid .

Paycheck is total amount earned.

Answer and Explanation:


Given information:

Monthly pay = 365.44 for 10 years.

Hence, total amount paid = {eq}\displaystyle 365.44\:\times \:12\:\times 10=43852.8 {/eq}

And

Total cost of loan is = {eq}\displaystyle \$35000 {/eq}

So total interest paid = {eq}\displaystyle 43852.8-35000=8852.8 {/eq}

{eq}\displaystyle \$8852.8 {/eq} should be the total interest.

As 12% of Luke's is 365.44 per month

Then his total paycheck per month = {eq}\displaystyle 365.44\:\times \frac{100}{12}=3045.33 {/eq}

Yearly income of Luke = {eq}\displaystyle 3045.33\times 12=36544 {/eq}

Luke need to earn {eq}\displaystyle \$36544 {/eq}per year


Learn more about this topic:

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How to Calculate Interest Expense: Formula & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 18
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