Many college graduates feel as if their student loan payments drag on forever. Suppose that the government offers the following arrangement: It will pay for your college in its entirety, and in return you will make annual payments until the end of time.
a. Suppose the government asks for $6,000 each year for all of eternity. If interest rates currently sit at 4%, what is the present value of the payments you will make?
b. Your college charges $140,000 for four years of quality education. Should you take the government up on its offer to pay for your college? What if your college charged $160,000?