Sallie Mae Making Changes To Student Loans

By CityTownInfo.com Staff

March 26, 2009

Sallie Mae, the nation's largest private lender to students, is replacing its standard loans with a shorter-term version which requires students to make interest payments while still in school.

The new loan was made available this week and will help borrowers reduce the total amount of interest they pay, as well as the duration of the loan. But the new requirements could very well make it even more difficult for some borrowers to get a loan.

The Washington Times quotes Jack Hewes, the chief lending officer for Sallie Mae, who noted that the cost of a private student loan would be cut by 40 percent. Additionally, students and families would repay the loans in five to 15 years, rather than 15 to 30 years.

But college students would feel the debt much more keenly. Sallie Mae said that a student who borrows $17,000 over two years would pay $40 monthly as a freshman and $160 per month by senior year. The Wall Street Journal notes that graduate students in law or medical schools would be paying much more, since they tend to borrow more.

Dylan Rubin, a sophomore at the University of Southern California, told the Los Angeles Times that the current terms would have prevented him from attending the university. "I would have picked a public college that cost less," he noted, "if I had to start to pay on the loans when I was in school."

Other students agreed. "I mean, the reason we're borrowing money is because we don't have any money. We don't have a job," said Lisette Gil, a high school senior accepted to the University of Texas at Austin, who was quoted in The Dallas Morning News. "It really doesn't make any sense."

The new loans are expected to improve cash flow for Sallie Mae, making it easier for the company to sell the loans as securities to investors, which would consequently make more loans available for borrowers. Moreover, Sallie Mae expects its default rate to significantly drop with the change; in the last quarter, 4.5 percent of the company's private student loans defaulted.

But some experts predict that Sallie Mae will lose clients as a result of the loan changes.

"If you don't like that arrangement, there are other alternatives," said Sheldon E. Steinbach, a higher education attorney, who was quoted in the Washington Times. "This is not the only means to securing private loans. If that is what they are offering, students can look for a better deal. There are plenty of those out there."

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