Question 951972: jimmy takes out a student loan for $25000 at a 5.2% interest rate. jim will be in school for 4 years and does not need to start paying the loan until graduation, but continues to collect interest. after 2 years and 6 months jim decides to make a partial payment of 2500 what is the interest and amount credited to the principal
Answer by JulietG(1812)   (Show Source):
You can put this solution on YOUR website! Jim is an idiot. Taking out that sort of student loan in this economy is stupid. Additionally, if he took out a government student loan, that $2500 goes to the interest, not the principal -- even if he pays it early.
Let's assume, though, that he was a little smarter and it's a private loan, and that the interest is straight rather than compounded daily.
He'll owe $1300 in interest THE FIRST YEAR. (25000*.052)
The second year, he'll owe .052 * 26300 = 1367.60 + 26300 = 27667.60
Assuming the interest doesn't compound until the end of the year, he pays off 2500 at year 2.5. 27667.60-2500 = 25167.60
The truth -- interest compounds daily on a student loan. Compounded daily, the interest on a 25000 loan at 5.2% after 2 and a half years:
28,470.71 total
3,470.71 in interest
His 2500 payment doesn't touch the principal. It just reduces the interest, which is compounding with the principal.
Get your first two years at a community college. Get the grades for an honor society that offers scholarships. (http://ptk.org is one)
Students loans are slavery.
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