Short Answer 
Subsidized loans are meant for undergraduates with financial need, where no interest accrues while in school. Unsubsidized loans are available to all students, with interest accumulating from the start. For Viola’s loan situation, her monthly payment is calculated to be $35.05 based on a present value of $4,850, an interest rate of 0.625% per month, and a repayment period of 10 years.
Step 1: Understand Subsidized Loans
Subsidized loans are designed for undergraduate students who demonstrate a financial need. This need is calculated based on your cost of attendance minus your estimated family contribution and any other financial aid. The key feature of subsidized loans is that while you are enrolled in school at least half-time or during deferment, no interest accrues on the loan.
Step 2: Differentiate Unsubsidized Loans
In contrast, unsubsidized loans are available to all students regardless of financial need. With these loans, the borrower is responsible for paying all interest from the moment the loan is taken. This means that while Viola is still in school, interest will accumulate, leading to larger monthly payments after graduation.
Step 3: Calculate Monthly Payments
The monthly payment for both types of loans can be calculated using the formula: PMT(RATE; NPER; -PV; FV; type). Specifically, for Viola’s situation:
- Present Value (PV): $4,850
- Interest Rate: 0.625% per month (7.5% annual rate divided by 12)
- Number of Payments: 120 (10 years multiplied by 12 months)