Question

It is estimated that the average amount owed for student loans in 2010 was $25,250 per student. If the interest rate for student loans increases to 6.8%, estimate how much more students will pay over a 10-year repayment period for this “average amount owed” as compared with 3.4%.

Answer 1

The equation for finding increase in interest is y = a * b^x

a= initial value 
b= increase rate ( 1 + r) 
x= time

to find the 6.8% increase:

y = 25,250 (1 + 0.068)^10

**0.068 = 6.8% as a decimal

Solve using a calculator: 

y = 48749.92  (round to the hundredth place since it is money)

Now solve the same equation using the 3.4% interest rate.

y = 25,250 (1 + 0.034)^10

Solve using a calculator.

y = 35274.98 (round to the hundredth place since it's money)

To find how it compares, subtract 35274.98 from 48749.92

48749.92 - 35274.98 = 13474.94

It increases at a faster rate as compared with the interest rate of 3.4%