Student loans: In 2010, according to the JAVMA journal report, the average educa
ID: 2646014 • Letter: S
Question
Student loans: In 2010, according to the JAVMA journal report, the average educational debt for veterinary school graduates was $133,873. The average starting salary for vets in private practice in 2010 was $67,548. If the vets earning an average salary devote 15% of their salary to paying off their educational debt (making one annual loan payment a year), how many years will it take to pay off that debt if the interest rate on their loans is: 3%: ___17-18__ years 6%: _________ years 9%: ________ years
Explanation / Answer
Answer:
Situation 1: (Interest rate 3%)
We know that present value of loan to be paid is $133873
And the annual payment shall be 67548 * 15% = $10132.20
Now we can calculate period using the present value of annuity formula:
PV = C *[{1-(1+r) ^ (-n)} / {r}]
PV = present value = $133873
C = Annual payment = $10132.20
r= rate of interest = 3% = 0.03
n= number of years
133873 = 10132.20 *[{1-(1+0.03) ^ (-n)} / {0.03}]
Solving for n we get n = 17-18 Years
Situation 2: (Interest rate 6%)
We know that present value of loan to be paid is $133873
And the annual payment shall be 67548 * 15% = $10132.20
Now we can calculate period using the present value of annuity formula:
PV = C *[{1-(1+r) ^ (-n)} / {r}]
PV = present value = $133873
C = Annual payment = $10132.20
r= rate of interest = 6% = 0.06
n= number of years
133873 = 10132.20 *[{1-(1+0.06) ^ (-n)} / {0.06}]
Solving for n we get n = 27 Years