Fall 2024 - AFA Final Exam Review

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What is a Federal Unsubsidized Student Loan?

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A Federal Unsubsidized Student Loan is a type of federal student loan where the borrower is responsible for paying the interest that accrues during the life of the loan, including while in school.

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How is interest calculated on a student loan during a non-payment period?

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Interest is calculated using the principal amount of the loan multiplied by the interest rate and the time period (in years) the interest accrues.

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What is the formula to calculate monthly payments on a loan?

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The monthly payment formula is: M = P[r(1 + r)^n] / [(1 + r)^n – 1], where M is the total monthly payment, P is the loan principal, r is the monthly interest rate, and n is the number of payments.

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What happens to unpaid interest on a student loan after a non-payment period?

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Unpaid interest may be capitalized, meaning it is added to the principal balance of the loan, increasing the total amount owed.

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When do federal student loan payments typically begin?

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Federal student loan payments are expected to start 6 months after you are no longer attending school.

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What is the impact of credit score on loan interest rates?

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A higher credit score generally results in lower interest rates on loans, while a lower credit score can lead to higher interest rates.

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How do you calculate the total interest accrued on a loan?

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Total interest accrued can be calculated by multiplying the principal amount by the interest rate and the time period (in years).

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What is the significance of capitalizing interest on a loan?

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Capitalizing interest increases the principal balance of the loan, which can lead to higher total repayment amounts over time.

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What is the difference between subsidized and unsubsidized loans?

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Subsidized loans do not accrue interest while the borrower is in school, while unsubsidized loans do.

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How do you determine the total amount owed on a loan after a non-payment period?

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Total amount owed can be determined by adding the original principal to the accrued interest during the non-payment period.