Viola took out a $8,470 Stafford loan at the beginning of her four-year college career. The loan has a duration of ten years and an interest rate of 7.5%, compounded monthly. How much more will Viola’s monthly payment be if the loan is unsubsidized than if the loan is subsidized? Round all dollar values to the nearest cent.

For a subsidized loan, Viola owes $8,470 when repayment begins. For an unsubsidized loan, interest accrues during the four years in college, so the balance grows to $8,470(1 + 0.075/12)^48, or about $11,422. The monthly payment on a 10-year loan at 7.5% is the balance multiplied by 0.00625/[1 − (1.00625)^−120]. Applying that payment factor to the difference in balances gives about $35.05 more per month, so the answer is $35.05.

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