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Name: ____________________________Per: _____ Due Date:

_______________________

Financing College with Compound Interest Loans


Project
The generalization is true: people with college educations typically
earn more income than those with less education. College is
expensive though. As such, you are likely going to need to borrow
money by taking out loans in order to pay your tuition. University
of Cincinnati Economics Center

Purpose: For this project, you will research two colleges of your choice
where you will determine the total cost of four years of a college education.
After calculating the comprehensive cost for four years of schooling, you
will use compound interest to calculate the long-term cost of college loans.

Step 1: Choose two schools to research. You must choose one 4-year
private or public university. The second school can either be a four-year
college or a community college. Keep in mind that you can only earn an
associates degree at a community college, and will need to transfer to a 4-
year institution to earn a bachelors degree.

Choice 1:
______________________________________________________________

Choice 2:
______________________________________________________________

Step 2: Calculate the total cost of 4 years of schooling for both schools.
This total must include tuition, books, room & board. Read Springboard
24-1 pg. 371 to remember to account for the annual tuition increases for
private and public colleges. You must include these percentages into your
calculations.

Annual Tuition increase for Public college: ______________

Annual Tuition increase for Private college: ______________

Step 3: Assume that you will earn $10,000 per year from summer work
and part-time work. Deduct this amount from the total costs.
Step 4: Calculate how much money you will need to borrow each year to
cover the additional costs that will not be covered by work and
scholarships.

Step 5: Use the chart on the back of this page to decide which is the best
combination of loans to pay for college. Calculate how much money you will
need to pay pack to the loan institution after you graduate college. Assume
r nt
you will be paying these loans off for 10 years. Use A=P( 1+ )
n

Step 6: Complete Final Reflection Questions.

Go to https://studentaid.ed.gov/sa/ to read about Federal


Student Aid.
Federal Federal Federal Federal Private Loa
Subsidized Unsubsidize Perkins Loan Direct Plus
Loan d Loan Loan
(for parents)
Interest Rate: Interest Rate: Interest Rate: Interest Rate: Interest Rate:
4.29% 4.29% 5% 6.84% 8.0%

Compounded Compounded Compounded Compounded Compounded


daily. daily. daily. daily. daily.
Maximum Maximum Maximum Maximum Maximum
Amount to Amount to Amount to Amount to Amount to
borrow: borrow: borrow: borrow: borrow:
Yr. 1: $3,500
Yr. 2: $4,500 $15,000 total $27,500 total $45,000 total $100,000 tota
Yr. 3: $5,500
Yr. 4: $5,500

1. What is Interest?

2. Who sets the interest rates for Federal Student Loans?

3. How often is it compounded for student loans (annually, monthly, daily,


continuously)?

4. What is the simple daily interest formula you will be using?


5. What is the difference between a Subsidized, Unsubsidized, and Perkins Loan?

6. How do you apply for federal student aid?

1st College: _________________________________________________________ Public


or Private? _________%

Model Equation for Total Costs:


_____________________________________________________________________

TUITION BOOKS, ROOM/BOARD YEARLY COSTS


EXPENSES
C(t)=

1st Year

2nd Year

3rd Year

4th Year

Total 1r n
Cost
1. What is the total cost for all 4 years? Use S n=a1 ( 1r ) to prove the total.
of 4
Years
2. If you earn $10,000 per year from work, how much money will you
need to borrow?
LOAN EQUATIONS:
_________________________________________________________________________________
____
NAME OF LOAN AMOUNT BORROWED & EQUATION TOTAL AMOUNT LOAN W
COST AFTER 10 YRS

TOTAL amount you will borrow:

TOTAL amount you need to pay back:

2nd College: _________________________________________________________ Public


or Private? _________%

Model Equation for Total Costs:


_____________________________________________________________________

TUITION BOOKS, ROOM/BOARD YEARLY COSTS


EXPENSES
C(t)=

1st Year

2nd Year

3rd Year

4th Year

Total 1r n
Cost
1. What is the total cost for all 4 years? Use S n=a1 ( 1r ) to prove the total.
of 4
Years
2. If you earn $10,000 per year from work, how much money will you
need to borrow?
LOAN EQUATIONS:
_________________________________________________________________________________
____
NAME OF LOAN AMOUNT BORROWED & EQUATION TOTAL AMOUNT LOAN W
COST AFTER 10 YRS

TOTAL amount you will borrow:

TOTAL amount you need to pay back:

Final Reflection Questions

Questions must be answered in complete sentences with justifiable


evidence and clarity.

1. What are the benefits of a college education?

2. Based on your calculations for each college that you chose to research,
which college are you more likely to select? Explain your choice using
mathematical reasoning.
3. What difficulties did you encounter while completing this project? Give
concrete examples.

4. What are the major conclusions that youve learned while completing this
project? State 2-3 things that youve learned and why they are important to
you.