4. To help finance his education, Jason took out student loans throughout his graduate program that with accrued interest over the degree program will result in a principal balance of $100,000 at graduation. The loan has an interest rate of 7% and lets assume that he will make constant payments annually over a ten year period following his graduation to pay off the loan.

To help finance his education, Jason took out student loans throughout his graduate program that with accrued interest over the degree program will result in a principal balance of $100,000 at graduation. The loan has an interest rate of 7% and lets assume that he will make constant payments annually over a ten year period following his graduation to pay off the loan.

(7 pts) What is your estimate of the constant annual payment (principal and interest) that Jason would have to make annually to pay off the loan in the ten year time frame? Assume that the first payment occurs exactly one year after graduation and the last payment occurs exactly 10 years after graduation.

(25 pts) Jason recently secured two different employment opportunities post-graduation. One of them is with a private company, the other is with the US Department of Treasury. Both of them are offering a starting salary of $100,000, equivalent benefits, and both expect to generate salary increases of 4% per year. Also assume that future employment opportunities will be equivalent irrespective of which offer is taken. The major difference between the two offers is that the private company is offering a signing bonus but the offer with the US government does not include one. However, under a new federal program, US government employees student loan payments are limited to 10% of salary and any outstanding balance is forgiven (no longer owed) at the end of the ten year payment schedule. How large does the signing bonus from the private company need to be to offset the reduction in student loan payments that would result from taking the US Treasury job so that Jason is indifferent over the two jobs? Ignore taxes.

(20 pts) As of the beginning of 2017 when this program was enacted, there was $1.4 trillion in student loans outstanding. Assume that 20% of student loan balances outstanding are owed by federal employees that are in a similar situation as Jason (i.e., assume they all have the same salary, loan balance, and repayment term). If that is the situation, how much of a loss (in present value) will the student loan program take as a result of implementing this new program?