# Project #95160 - don't need title

Joe is considering going to New England Technical Institute (NETI) for a two-year computer science vocational program. To pay for the postsecondary education Joe must borrow \$15,000 the first year for tuition and \$10,000 the second year for tuition. Tuition must be paid at the beginning of the year, and the interest rate on the borrowed money the first year is 4% and the interest rate on the borrowed money the second year is 3.5%. Joe is unable to make any payments on the loans while he is at NETI.

Assume that Dynarski’s Loans for Educational Opportunity (LEO) has been implemented and it is under this plan that Joe will repay his student loan. Under the current implementation of the loan this is the repayment rate schedule:

 Earnings First \$10,000 \$10,001-\$25,000 \$25,001-\$40,000 All earnings over \$40,000 Repayment rate 3 percent 5 percent 7 percent 9 percent

Joe gets a job immediately after he finished his program at NETI. He is paid annually at the end of the year. Here is the schedule of what Joe will make over his lifetime, along with the schedule of the interest that is charged to Joe’s student loan. (You will notice that Joe had a downturn in his 6th and 7th years of working when he was forced to work part time, but then he came back strong with a substantial increase in salary beginning in year 7.)

 Year working 1 2 3 4 5 6 7 8 9 Interest rate (%) 3.5 3.5 4 4.5 5 4.75 4.5 4 4.25 Annual salary \$25,000 3% raise 3% raise 3% raise \$10,000 \$9,000 \$35,000 \$38,000 \$41,000

continued...

 Year working 10 11 12 13 14 15 16 17 18 Interest rate (%) 4.5 4.5 4.75 4.5 4.5 4.25 4 4 Assume 4 for all remaining years Annual salary 3% raise Assume a 3% raise every year until he   retires

assume all interest is compound interest, not simple

1.  How much in interest did Joe owe on the \$25,000 he had to borrow for the two years of school as he left school and entered the job market? (This is important because he has to pay back not only the \$25,000 principal on his student loan, but any interest that accrues on top of unpaid debt.)

2.  How much will Joe owe on his student loan at the end of his first year on the job when he is paid his annual salary and finally has money to start repaying his loan?

3.  How much will be withheld from Joe’s paycheck at the end of the first year as payment toward his student loan debt?

4.  What will be the size of Joe’s student loan as he begins his second year on the job?

Now that you have the basics of how this is going to work, you should set up an Excel spreadsheet to answer the remaining questions. You should include print outs of your excel worksheets or some information showing how you get your answers below so that we may give you partial credit if your answers are not exact.

5.  At the end of which year on the job will Joe pay off his student loan debt?

6.  What is the total amount of principal plus interest he will have paid when he finally pays off his student loan?

7.  If instead of the LEO program Joe had been under the current Stafford loan program, and assuming a 4.3 percent interest rate, he would have faced 10 equal annual payments of \$3,128.48 for a total loan cost (principal plus interest) of \$31,284.78. Given this and your answer to #6, what are the pros and cons of LEO versus the Stafford loan program? For this answer, focus on this problem as the facts are presented, don’t go to the slides or the paper and just regurgitate an answer based on what’s there. What do you see in the figures you’re working with here, and with Joe’s “reality” and how do you see the two programs? Explain your answer.

 Subject Mathematics Due By (Pacific Time) 11/22/2015 10:00 am
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