As indicated in the All About You feature in this chapter, a student can benefit from financial
Question:
As indicated in the “All About You” feature in this chapter, a student can benefit from financial leverage by borrowing to pay for an education. However, too much leverage can result in graduates struggling to make their loan payments. With most government student loan programs, you have at least six months’ grace after the end of your post-secondary education before you have to start paying back your loan. If you take advantage of the grace period, the maximum number of monthly payments is 114; however, you may request an extended amortization period of up to 174 months by revising the terms of your loan agreement.
Instructions
Go to www.canada.ca to answer the following questions regarding monthly payments and the total interest payable on student loans. On the website, search for “Education Planning Tools” and click on the link “Loan Repayment Estimator.”
a. Under Option 1 in the Loan Repayment Estimator, enter the loan amount of $20,000 and assume that you take advantage of the grace period and the grace period interest is included in your loan balance. Also assume a fixed interest rate of 3% and 114 months of repayment.
1. What is the amount of each monthly payment?
2. How much interest is payable over the 114 months?
b. Under Option 1 in the Loan Repayment Estimator, enter the amount of $20,000 and assume that you take advantage of the grace period and the grace period interest is included in your loan balance. Also assume a fixed interest rate of 3% and 174 months of repayment.
1. What is the amount of each monthly payment?
2. How much interest is payable over the 174 months?
c. Which student loan repayment term is the better option?
Step by Step Answer:
Accounting Principles Volume 2
ISBN: 9781119786634
9th Canadian Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak