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Personal Finance

Unit 6

Paying for College and Big Purchases

6 topics · 24 practice questions · Free responseNot yet reviewed

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Notes

Paying for college

  • Cost of attendance includes tuition, housing, food, books and more. Net price $=$ cost $-$ grants and scholarships.
  • The FAFSA is the free application for federal aid. Never pay to file it. Compare award letters.
  • Grants and scholarships are not repaid; loans are. Work-study is a part-time job. Use gift aid first and borrow only what you need.
  • Unpaid loan interest can accrue and be added to the balance.

Cars

  • Consider total ownership costs: price, tax, insurance, fuel, maintenance. Cars depreciate. Loan $=$ price $-$ down payment.

Renting vs. buying a home

  • Renting: lower up-front cost, flexibility. Buying: builds equity but needs a down payment, a mortgage, taxes, insurance and upkeep. Buying usually works best if you stay several years.

Topics in this unit

Each topic has its own short notes and practice.

Practice

Which type of aid does not have to be repaid?
Cost of attendance is $18,000. Grants and scholarships total $7,000. What is the net price?
A $30,000 car depreciates 20% in its first year. What is its approximate value afterward?
A car costs $18,000. The buyer puts $4,500 down. How much is financed?
A $300,000 home requires 10% down. How much is the down payment?
Which is the best first step to apply for federal student aid?

Free response

Write your answer first, then open the scoring guide.

Free-response question

Elena is comparing two ways to pay for a $20,000 year of college. Use made-up numbers. Her cost of attendance is $20,000. She receives $5,000 in grants and a $3,000 scholarship.

(a) Find Elena's net price.

Show the answer and scoring guide

$20000 - 5000 - 3000 = 12000$, so $12,000.

Check off the points you earned:

(b) She borrows $8,000 at 5% simple interest and repays it over 5 years. Find the total interest and total repaid.

Show the answer and scoring guide

Interest $= 8000 \times 0.05 \times 5 = 2000$. Total repaid $= 8000 + 2000 = 10000$, so $10,000.

Check off the points you earned:

(c) Explain the difference between her grants and her loan and why she should file the FAFSA.

Show the answer and scoring guide

Grants and scholarships do not have to be repaid, but the loan must be repaid with interest. The FAFSA is free and is how she applies for federal aid such as grants, work-study and loans; many states and colleges also use it.

Check off the points you earned:

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