Sallie Mae Slashes Interest Rates

May 16th, 2011 @ 7:24 AM by Debbie Dragon

According to an article on businesswire.com Sallie Mae, the largest private student loan lender recently announced that they will be lowering their interest rates for next school year’s loans.

The Smart Option Student loan will carry a lower interest rate and have a flexible pay back plan which will give students the option of paying back some of their loan while they are still in school. With higher tuition fees and less federal aid available, it gives students a means to come out of school with less debt.

According to the article on businesswire.com, Sallie Mae’s Smart Option Student loan will offer students three options when it comes to repayment:

• Interest Repayment Option: Under this option a student, often with the assistance of a cosigner, pays only the monthly accruing interest while in college. After school, the loan’s repayment period is typically eight years shorter, resulting in an average savings of 49 percent in interest charges.
• Fixed Repayment Option: With the Fixed Repayment Option, students pay a simple $25 per month regardless of loan balance or interest rate. With the average loan’s five-year-shorter repayment term, a typical customer can save more than 30 percent in interest charges over the life of the loan.
• No in-school minimum payment or Deferred Repayment Option: No minimum payment is required while in school, though students and cosigners receive monthly statements on accruing interest, an updated balance, and information on how to make a payment. After graduation, the average term is three years shorter than the traditional 15-year repayment term, enabling a typical customer to save an estimated 17 percent in interest charges—or more if the student made any in-school payments.

The new loans will offer the lowest interest rates to those who opt to start making payments while they are still in school. Lending criteria for the loans is not expected to change and will still be stringent. With the tighter lending standards that are currently in place, borrowers should expect that they could be asked for a loan co-signer. Currently, about 60% of Sallie Mae’s loans carry a co-signer. Students who get a co-signer will have a better chance of getting their loan approved and could additionally receive a lower interest rate.

Sallie Mae is a popular choice for private loan funding, currently having 23 million customers. Even so, students should always max out federal grants and federal loans before looking for private funding options.