## Related questions with answers

There are many online student loan calculators that can assist you. Examine the input boxes for one such calculator (Cost of Interest Capitalization Calculator www.finaid.org).

$\begin{array}{lc} \text { Loan Balance } & 5500 \\ \text { Interest Rate } & 4.29 \\ \text { Deferment in Months } & 54 \\ \text { Capitalization } & \text { At Repayment } \\ \text { Loan Term in Years } & 10 \end{array}$

After clicking "calculate" the following information is reported: Comment 1: After the deferment period of 54 months, the new loan balance is $6,561.78, including$1,061.78 in accrued interest. Comment 2: Without the interest capitalization there would have been 120 payments of $56.45 adding up to$6,774.00 (including a total of $1,274.00 in interest) plus an additional$1,061.78 in interest paid during the deferment period. Comment 3: With the interest capitalization, there are 120 payments of $67.34 for a total payment of$8,080.80 (including a total of $1,519.03 in interest plus$1,061.78 in interest accrued during the deferment period). Comment 4: The total amount paid with interest capitalization is $8,080.80, or$245.03 more than would have been paid without capitalization. That's an extra $0.04 for every dollar borrowed. Answer the questions below based on the comments above. Examine comment 2. Explain the way in which a student chose to make payments if this comment applies.

Solution

VerifiedObserve.

"Without the interest capitalization" means that the interest accrued during the deferment period is paid by the student. The monthly payment of $56.45 is computed using the original loan amount of $5,500 (unchanged).

Answer: Interest accrued during the deferment is paid.

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