Question

Please explain how to solve this problem:

Assume you are in repayment on $50,000 in student loans. The terms of your loan are a 10-year (120 period) repayment term at a 5% annual interest rate.

(a) Assuming you make all your monthly payments on time, how much will you pay back in total over the lifetime of this loan?

On March 27, 2020, Congress passed the CARES Act, which, among other things, automatically placed all student loans currently in repayment into administrative forbearance for the six month period from April to September 2020.23 What his means in practice is that borrowers are not required to make payments over these six months and no interest charges or penalties are accrued over these six months. Even though you are not required to make payments from April until September, suppose you decide to continue making your payment anyway for parts (b) and (c).

(b) Assume you would have entered repayment on this loan on April 1. How much less will you pay in total over the lifetime of this loan?

(c) Now assume that, as of April 1, you were halfway through paying back your loan (i.e. you had made 60 consecutive monthly payments). In this case, how much less will you pay in total over the lifetime of this loan?

Answer 1

(a) Total amount paid after 10 year of $ 75000/-

Principle amount :$50000

Rate of interest : 5%

Time : 10 years

Simple interest = P*R/100*T

50000*5/100*10 = $ 25000/-

Principle +interest ( 50000+25000) =$75000/-

(b) If you enter in April to repayment of Loan then according to CARE act you EMI and interest will be suspended for 6 months, then your payment dose not reduce but your burden due to COVID 19 govt give this relaxation. So in this case you're payment also same as above discussed. One thing to understand here your payment term is now extended for 6 months more.

(c) If you pay your half loan up-to April 2020 then as discussed in point no. (b) your time will extend for 6 months and now you have to pay of $ 37500/- Simply understand

Principle amount = $50000, Rate of interest 5% and time 10 years ( 120 month's)

If you pay 60 months installment then now your pending time just only 5 years ( 60months)

In last 60 months you have also paid the half amount of loan so now your pending amount $37500/-